Cavotec
Cavotec - Margins stay resilient despite lower sales (ABG Sundal Collier)

2020-07-24 07:40
6.6% adj. EBIT margin (7.1%) on 18% lower sales
Some delayed orders, but market interest at a good level
8x EV/EBIT ‘21e on 17% adj. EBIT CAGR ’19-‘22e
Q2 details
Cavotec managed to keep resilient margins despite a double-digit sales decline. Sales arrived at EUR 42m (-7% vs. ABGSCe 45m), down 18% y-o-y, of which -17% was organic (ABGSCe -11%). Ports & Maritime (-3% y-o-y) remained resilient while Airports & Industry saw lower deliveries (-28%). Adj. EBIT decreased 24% y-o-y to EUR 2.8m (ABGSCe 2.8m), for a margin of 6.6% (ABGSCe 6.3%, 7.1% in Q2’19). The order backlog amounted to EUR 98m (ABGSCe 99m), -9% y-o-y as the CEO notes that COVID-19 delayed customers’ “short-term investment decisions”, while market interest still “remains at a good level”. Services amounted to 17% of sales while free cash flow amounted to EUR 2m.

Estimate changes
We note that earnings arrived in line with our expectations while sales was a bit below. Based on the Q2 report alone, we believe higher margins on 1-2% lower sales could result in limited revisions. For ’19-‘22e, we currently forecast a 17% adj. EBIT CAGR on 4% sales CAGR.

Final thoughts
Cavotec’s share price return over the last three months has been +19% compared to the Carnegie Smallcap index at +27%. As we look ahead, we continue to expect increasing demand for Cavotec’s solutions, especially within Ports & Maritime, while the company’s improving operations, solid service contribution and leaner cost base are expected to drive further margin improvements (from 8% 2019 to 11.3% in 2022e). On our pre-Q2 estimates, Cavotec is currently trading at 8-6x EV/EBIT ‘21e-‘22e and 6-10% lease adj. FCF yields.


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