Margin resilience in a slower quarter

Adj. EBIT -9% ‘20e, down 5-4% ‘21e-‘22e

9x EV/EBIT ‘21e, 15% adj. EBIT CAGR ’19-‘22e

Short-term hesitation, growth investments on the agenda
The overall lower demand in Q2 in combination with travel restrictions affecting service capabilities hurt demand. Cavotec saw revenues decline by 17% organically (ABGSCe -11%), with Ports & Maritime (P&M) holding up well (-2%). According to the CEO, market interest was high for Cavotec’s environmental products. However, the current demand environment resulted in some hesitation from customers. Despite the double-digit sales decline, adj. EBIT margins remained resilient, at 6.6% (ABGSCe 6.3%, 7.1% Q2’19). Cash flow generation remained strong, and Cavotec now has close to zero net debt (excl. leasing). With the CEO flagging for upcoming growth investments into “key markets and product segments”, we believe there is a high likelihood of M&A given Cavotec’s renewed financial strength.

Negative revisions due to customer delays and FX
We lower our sales forecasts by 5-3% for ‘20e-‘22e, as customers hesitating with orders is likely to remain in H2’20. This and FX changes result in us lowering ‘20e-‘22e adj. EBIT by 9-4%. For ’19-‘22e, we now forecast a 5% organic sales CAGR and a 15% adj. EBIT CAGR.

Long-term drivers remain, financial strength to pursue them
Our view of Cavotec’s long-term growth outlook remains. The company is in a strong position to benefit from structural trends within areas such as shore power, automated mooring and industrial connectivity. In addition, we believe margins are set to expand further due to growth in high-margin segments, an accretive service contribution and the company now possessing a leaner cost base compared to the past. On our estimates, Cavotec is trading at 9x EV/EBIT ‘21e on double-digit earnings growth and will be net cash (excl. leasing) by YE’20e.

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