Cargotec Q2'24: Risk/reward is no longer balanced

This report is a summary translation of the report “Tuotto-riskisuhde ei ole nyt balanssissa” published on 8/11/2024 at 8:10 pm EEST.

Cargotec's Q2 orders and revenue were almost in line with expectations, but MacGregor in particular surprised positively in terms of comparable profitability. The increase in Cargotec's guidance for 2024 has already been included in the forecasts. Our projections for 2025-2026 have risen quite markedly. Based on the sum-of-the-parts calculation, Cargotec's share is fully priced. Therefore, we are reiterating our Sell recommendation. However, we are raising our target price to EUR 44.0 (39.0) due to the increase in our forecasts. 

Strong momentum in Q2 profitability

In Q2, Hiab's order intake (-7% y/y) was below both own and consensus forecasts. Hiab's bidding activity is stable for the sixth consecutive quarter, but high financing costs and prolonged economical uncertainty are holding back customer investments. MacGregor orders (+26% y/y) grew well above expectations due to strong demand from the car ferry sector. Hiab's Q2 revenue (-11% y/y) was stronger than expected, and the service business' share of revenue increased to 27% (Q2'23: 23%). MacGregor's revenue (+17% y/y) was disappointing, due to the termination of the offshore wind turbine installation vessel project. Hiab's Q2 comparable operating profit (margin 15.9%) exceeded both own and consensus expectations. Although profitability declined year-on-year, Hiab says that previous pricing actions, fixed cost management and cooperation with suppliers to reduce costs mitigated the impact of the decline in revenue. MacGregor's comparable EBIT margin was a respectable 11.1%. Profitability was supported by an increase in the share of commercial vessels, but the margin was lower (9.1%) if the impact on revenue of the above-mentioned project closure is excluded. The impact of the termination of the project (-29 MEUR) was included in the reported EBIT of MacGregor and of course of the group.     

Guidance increase was already in the numbers

The demand growth outlook for Hiab in 2024 is sluggish. Demand for heavy trucks is expected to fall sharply in key markets, and the construction sector is anemic. The customer's decision process from sales signal to order has been extended in all product areas. While MacGregor's order intake this year will still benefit from vessel orders received by shipyards last year, Clarkson expects merchant and offshore vessel order volumes to decline in H2'24 and throughout 2024. For the full year 2024, Cargotec now expects Hiab to achieve a comparable EBIT margin of more than 13.5% (was >12%) and MacGregor to achieve a comparable EBIT of >55 MEUR (was >33 MEUR). In practice, the guidance increase had already been factored into the forecasts. Following Hiab's positive profitability surprise, we have raised our business EBIT margin forecasts for 2024-2026 by 0.9-1.7 percentage points and our revenue forecasts for 2025-2026 by 3-4%.  Our forecast changes for MacGregor are focused on 2024 (revenue +2% and comparable EBIT margin +1.7pp).   

The sum of the parts indicates full valuation

Based on our sum-of-the-parts calculation, the value of a Cargotec share in its current shape is EUR 39-49. The potential change from the current share price to the end of the range is -14 to +8% with a midpoint of -3%. Based on the calculation, Cargotec's share is fully priced and there is no justified upside. In addition, the sale price of MacGregor carries a significant risk that could be realized in H2'24.