Cavotec - Doubling down on port demand acceleration
Improving backlog q-o-q, growth investments in Ports Demand is picking up, but major growth to kick in in 2022 Turnaround complete, exit of Airports, growth in Ports Improving backlog and substantial growth investments Cavotec delivered a stable quarter with flat organic sales (ABGSCe -7%) and an EBIT margin expansion (5. 5% to 8. 2%) in its core business, now known as “New Cavotec”. New Cavotec, consisting of the Ports & Maritime and Industry businesses (ex Airports), showed a sequential backlog improvement, which in combination with optimistic wording from management would indicate that demand is improving.
However, in contrast to our previous reasoning, we believe that timing effects will result in notable sales growth first towards the end of 2021. In addition, the separated (to be sold) Airports division (EUR 43m in sales FY’20) delivered a loss in Q1’21 but showed surprisingly strong profitability during 2020 (8. 0%).
Given management’s indications of the Q1 loss not being representative for the rest of the year, we believe this raises the likelihood of a divestment before year-end. Finally, Cavotec conveyed an optimistic outlook on the long-term growth potential within port automation and electrification, and is therefore investing EUR 20m in order to be prepared to capitalise on the expected demand acceleration. Profits reallocated towards 2022e-2023e We believe that a EUR 20m investment would not have been undertaken, or approved by the board, unless there were tangible signs of significant market demand.
Although we lower our FY’21 EBIT estimate by EUR 6m (-33%), we raise our estimates for FY’22-‘23 by 5-12% on the back of double-digit growth primarily within P&M. For ’19-‘23e, we forecast a 6% organic sales CAGR and a 19% adj. EBIT CAGR on the back of a 4.
9pp margin uplift. 10-7x EV/EBIT ‘22e-‘23e, 19% adj. EBIT CAGR ’19-‘23e We believe that Cavotec continues to make sound strategic decisions through 1) a successful turnaround, 2) the impending Ai.
