14% org sales decline, ready for the demand upturn

Adj. EBIT up 1% for ‘21e-‘22e, substantial EBIT growth

11-8x EBIT ‘21e-‘22e, 15% adj. EBIT CAGR ’19-‘22e

Profits remain despite hesitant customer activity
Cavotec finished the year by delivering a 14% organic sales decline in Q4’20 (ABGSCe -18%), with Airports & Industry (A&I) holding up better (-11% y-o-y) than Ports & Maritime (‘P&M’, -21% y-o-y). According to management, the company is well-positioned from the intact long-term demand for applications such as automated mooring and shore power. However, COVID-19 continues to delay decision-making and, therefore, projects. Despite the low deliveries, the company generated a positive adj. EBIT of EUR 1m (2.5% margins), compared to our expectations of a small loss. In addition, cash flow was strong, resulting in the company now having a small net cash position (ex. IFRS 16). We understand the company is seeing high customer activity in its sustainability-linked products and will continue to invest to be ready for returning demand, towards mid-2021.

Small estimate changes, our margin expectations remain
We expect Q1’21 to remain affected by customer uncertainty. However, we forecast slight sales growth y-o-y in Q2’21 before a significant demand recovery in H2’21e. Overall, this means that we expect 2021 sales of EUR 192m vs. 2019 sales of EUR 196m, with a margin of 9.5% (8.0% in 2019). Beyond 2021, we expect the combination of high-margin products and recent cost savings to drive solid operating leverage, allowing Cavotec to reach 12% margins in 2023e.

Strong potential to reach its financial targets
We argue that the Cavotec of today is not the same internally troubled company as it was a few years ago. Looking ahead, the company looks set to benefit from structural growth opportunities from areas that offer significant environmental benefits, expanding margins and a strong balance sheet. If Cavotec reaches its financial targets (5% sales CAGR, 12% margins), we believe that th
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