Cavotec: Accelerated order momentum, but lower sales - ABG
This is a third party research report and does not necessarily reflect our views or values
Q2 results
Market activity is improving, especially in ports. The order backlog grew 8% y-o-y and 14% q-o-q to EUR 106m (+10% vs. ABGSCe 96m), primarily due to strong order intake in the “New” Cavotec (businesses excl. Airports), where the order backlog grew 14% y-o-y and 19% q-o-q to EUR 77m. We note that multiple orders related to shore power and automated mooring were booked during the quarter, and the CEO also highlighted growing orders in the industrial segment. Group sales were hampered by the lower backlog support from 2020 and declined 13% organically to EUR 36m (-16% vs. ABGSCe 43m). New Cavotec sales declined 13% y-o-y to EUR 26m (vs. ABGSCe 33m). EBIT came in at EUR -0.1m (vs. ABGSCe 2.6m), for a margin of -0.4% (ABGSCe 6.0%, 6.6% in Q2’20). However, New Cavotec’s margins adj. for growth investments grew from 3.6% to 5.2% despite lower sales. FCF came in at EUR 3m, supported by a working capital release of EUR 3m.
Estimate changes
Based on the Q2 report alone, the implicit revisions would mean that our group sales and adj. EBIT estimates should come down by 4-3% and 10-15%, respectively, for FY’21e-‘22e. However, keep in mind that numbers are low in absolute terms and that the stronger than expected order momentum should support sales during late H2’21 and onwards.
Final thoughts
Although we had expected a faster sequential improvement in sales with short lead times, we find it positive that order momentum is picking up, which is key for the medium-to-long term. Once orders begin to support topline growth, we see good potential for Cavotec to reach its 10-12% margin targets. The stock is up 10% L1M (+13% yesterday) vs. the Carnegie Smallcap index at +8% and is currently trading at (pre-Q2 numbers) 10-7x EV/EBIT ‘22e-‘23e.
Market activity is improving, especially in ports. The order backlog grew 8% y-o-y and 14% q-o-q to EUR 106m (+10% vs. ABGSCe 96m), primarily due to strong order intake in the “New” Cavotec (businesses excl. Airports), where the order backlog grew 14% y-o-y and 19% q-o-q to EUR 77m. We note that multiple orders related to shore power and automated mooring were booked during the quarter, and the CEO also highlighted growing orders in the industrial segment. Group sales were hampered by the lower backlog support from 2020 and declined 13% organically to EUR 36m (-16% vs. ABGSCe 43m). New Cavotec sales declined 13% y-o-y to EUR 26m (vs. ABGSCe 33m). EBIT came in at EUR -0.1m (vs. ABGSCe 2.6m), for a margin of -0.4% (ABGSCe 6.0%, 6.6% in Q2’20). However, New Cavotec’s margins adj. for growth investments grew from 3.6% to 5.2% despite lower sales. FCF came in at EUR 3m, supported by a working capital release of EUR 3m.
Estimate changes
Based on the Q2 report alone, the implicit revisions would mean that our group sales and adj. EBIT estimates should come down by 4-3% and 10-15%, respectively, for FY’21e-‘22e. However, keep in mind that numbers are low in absolute terms and that the stronger than expected order momentum should support sales during late H2’21 and onwards.
Final thoughts
Although we had expected a faster sequential improvement in sales with short lead times, we find it positive that order momentum is picking up, which is key for the medium-to-long term. Once orders begin to support topline growth, we see good potential for Cavotec to reach its 10-12% margin targets. The stock is up 10% L1M (+13% yesterday) vs. the Carnegie Smallcap index at +8% and is currently trading at (pre-Q2 numbers) 10-7x EV/EBIT ‘22e-‘23e.