Kalmar Q2'24 preview: Many moving parts

Translation: Original comment published in Finnish on 08/06/2024 at 7:22 am EEST 

Kalmar will publish its Q2 report on Thursday, August 8, at 9:00 am EEST. According to recent news, the market image remains quite positive. We find it highly likely that Kalmar will repeat the 2024 guidance issued at the beginning of July. The valuation of the stock is cheap. 

Reasonable market, but still a lot of uncertainty in Q2 numbers

The market environment has been quite favorable in Q2. RWI’s Container Throughput Index was on average +7% higher than one year earlier. The peer Konecranes said that the demand for its Port Solutions was at a good level, e.g., in straddle carriers and forklift trucks. In addition, Konecranes praised the demand in the logistics sector, which is also central for Kalmar. For Kalmar, the demand risk is probably focused on the metal and forest industries and heavy logistics (construction), but their combined share is under 20% of the company’s revenue.

We expect Kalmar's Q2 order intake to be 432 MEUR (-1% y-o-y), which is clearly stronger than the consensus (401 MEUR; -8% y-o-y). We predict a -5% y-o-y change in equipment orders (consensus: -10% y-o-y) and +7% y-o-y in service orders (consensus: +3% y-o-y). Orders announced by Kalmar to date to be recorded in Q2 have been very low (< 1 MEUR), but the announcements are often delayed. The unpublished, or so-called base orders in the comparison period Q2'23 (406 MEUR; -27% y-o-y) were already modest. In addition, Konecranes' Port Solutions reported a +26% y-o-y growth in base orders in Q2. However, there is a downward risk in our order expectations, as in its pre-silent period conference call in June Cargotec said that customer decision-making in Kalmar is still slow and the rampdown of distributors’ inventories has continued. 

Our forecast for Kalmar's Q2 revenue change (-23% y-o-y) is in line with the consensus (-22% y-o-y) and the expected changes are in the same range in both equipment revenue (-26% y-oy) and service revenue (-2% y-o-y). The reason for the decrease in equipment revenue is the -24% y-o-y drop in order intake in 2023. Therefore, the Group’s Q2 sales mix is clearly more service-oriented than in Q2’23 (33% vs. 27%). We are clearly more cautious than consensus when it comes to the Q2 adjusted EBIT margin (11.2% vs. 12.1%). The difference is caused by expected group expenses, as our estimate is markedly higher than the consensus (-13.5 MEUR vs. -8.1 MEUR). We believe that costs have been elevated as Kalmar prepared for Cargotec’s partial demerger. The difference between adjusted and reported EBIT in the table is due to listing costs of -20 MEUR in our forecasts, which apparently have not had much effect on consensus figures. In the prospectus, Kalmar estimated that its demerger and IPO costs are 50 MEUR, of which 21 MEUR had been recorded as an expense by the end of Q1’24. In the income statement items below the operating result, our net financial expenses estimate (-0.2 MEUR) is clearly lower than the consensus (-1.9 MEUR), and the same applies to the group tax rate (23% vs. 26%). These figures are subject to considerable uncertainty due to the lack of comparison and benchmark figures.   

Our 2024 earnings forecast is more conservative than the consensus

The demand outlook for the rest of 2024 is reasonable. Konecranes stated in its Q2 report that "global container throughput continues on a high level, and long-term prospects related to global container handling remain good overall”. In June, BIMCO also raised its estimate of growth in global container volumes for 2024 to +5…+6% y-o-y from the previous +2…+4%. However, according to the KPMG forecast mentioned in Kalmar's prospectus, Kalmar's target market would only grow by +2% p.a. in 2024-2025 before growth accelerates. For Kalmar, we expect the order intake to recover earlier, as orders dropped by -18% y-o-y already in 2023.

Kalmar has not issued a revenue guidance for 2024. Our revenue change forecast for the full-year (-15% y-o-y) is in line with the consensus, and the decrease is based on previous sluggish order intake. Kalmar's guidance is that as a standalone company, its EBIT margin is  >11% in 2024. We believe that this guidance will be repeated. The corresponding figure for 2023 (excluding heavy cranes and Navis) was 13.0%. There is a lot of safety margin in the guidance, bearing in mind that the comparable EBIT margin in Q1’24 (12.2%) improved from 12.0% in Q1’23. Our comparable EBIT margin estimate for 2024 (11.7%) is clearly below the consensus (12.6%). However, we have wanted to be conservative and consider that 2024 revenue will fall clearly and that there may still be a lot of surprising expenses associated with starting up as an independent company.

The stock is cheap

The valuation of Kalmar's stock is cheap. The expected +18…+21% p.a. total return clearly exceeds the required return (approximately 10%) with different multiples. The stock’s 2025 P/E and EV/EBIT ratios are -7--23% below the median of the peers. The upside to the DCF value is 51%.