Q4 report on 21 February, 07:00 CET

Minor revisions, EBIT +5% on strong ending to ‘19e

Turnaround well on the way, 8.5x EV/EBIT adj. ‘21e

Expect a Q4 with slight growth and significant margin uplift
We expect Q4 orders of EUR 48m, up 9% y-o-y (7% organic), as we anticipate step three in the turnaround (pursuing growth) to kick in during 2020. We forecast sales of EUR 50m, up 3% y-o-y (2% organic), supported by an increasing order book of higher quality versus its history. We expect a similar cost base to that of Q3, leading us to derive adj. EBIT of EUR 4.2m (0m Q4’18), for a margin of 8.5%, above the company’s 7% targeted margin “before 2021”. As we head into 2020, we believe Cavotec will say that most of the turnaround efforts have been completed and that focus will now be on profitable growth.

Increased optimism of Q4’19 behind +5% EBIT in ’19e
We raise our EBIT assumption for ‘19e by 5%, due to our belief in a solid Q4’19 report. We make minor revisions to our ‘20e-‘21e estimates. Going forward, we expect further margin improvement to stem from organic growth on a trimmed down cost base. For ‘19e-‘21e, we forecast an adj. EBIT CAGR of 26%, on 5% organic sales CAGR.

2023 margin target looks achievable already in 2021
We believe the most complex parts of the turnaround are now behind us. On expected flat organic sales growth during 2019, adj. EBIT margins have improved from ~2% to ~7%. At the same time, the Cavotec stock has appreciated c. 50% during 2019. Looking ahead, we believe that the margin target of 10% “before 2023” could be achievable by 2021e, if Cavotec is able to grow in line with its targeted 5% CAGR. On our estimates, Cavotec is trading at 8.5x EV/EBIT adj. ‘21e, with a 26% adj. EBIT CAGR ‘19e-‘21e and high single-digit lease adj. FCF yields.

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