Cargotec: Waiting for further information

Translation: Original published in Finnish on 1/14/2025 at 8:30 am EET.

Cargotec/Hiab's market is stable, as is the company's own revenue and profitability development. Our forecast changes for 2024-2026 are due to the transfer of MacGregor to discontinued operations. However, the valuation picture for the company and the stock is currently unclear until the balance sheet structure of the new entity is made public, and for the same reason, the appropriateness of many valuation measures has temporarily deteriorated. However, we believe that a significant part of the overvaluation has been eliminated and we are raising our recommendation to Reduce (was Sell) while maintaining our target price of EUR 51.00. 

Forecast changes reflect MacGregor divestment

Cargotec's pre-silent analyst call did not provide any significant new information about the company's target market. Customer behavior remained similar to Q3, also geographically. Hiab has been very successful in its commercial operations and the optimization between component costs and its own pricing has been good, supporting both revenue and margins. 

Cargotec elaborated a bit on Hiab's outlook for 2025 and said that the market picture for H1'25 is not much different from 2024. Hiab's order intake has been stable since Q2'24, which is also an indicator of future revenue development. Volumes and cost management will be the main margin drivers, and the 20 MEUR cost savings program now being implemented will secure the margin development in 2025.    

Cargotec reiterated its previous statement, i.e., the company will record a tax-exempt loss of -200 MEUR from the sale of MacGregor in Q4'24, which will be recorded as a goodwill impairment. Cargotec emphasized that the balance sheet will be very strong after the sale of MacGregor, and the company again flashed the possibility of an extra dividend. However, the situation is complicated by the fact that a comparable pro forma balance sheet for the end of 2023 has not yet been presented.

Our forecast changes for 2024-2026 are based on the transfer of MacGregor to discontinued operations, so the current figures now reflect only the "old" Hiab. We have also modeled an additional dividend of EUR 1.00 per share to be paid from 2025 earnings.

Current valuation picture is unclear

Cargotec's total expected return is negative based on 2025 EV/EBITDA and EV/EBIT multiples. However, due to the high level of uncertainty surrounding the EV component of the calculation, we do not currently base our investment recommendation on this measure. 

As peers are almost universally much more indebted than Cargotec is likely to be, EV/EBIT is in principle a more appropriate comparison than P/E. Nevertheless, the EV/EBIT also suggests a valuation premium of around +30% for Cargotec at 2025 multiples. Even when taking into account the uncertainty surrounding the balance sheet structure, Cargotec’s share still looks overvalued.  

The DCF model indicates a modest upside of +4%. Even on this basis, the stock cannot be considered attractively priced based on current data, but the overvaluation is not as visible as with other methods.