Kalmar initiation of coverage: Cheaply on board the industry leader

We initiate coverage of Kalmar with a Buy recommendation and a target price of EUR 36.0. The growth of Kalmar’s target market is accelerating, supported by strong megatrends like the need to reduce emissions and electrification, as well as the change in the logistics environment. Kalmar is one of the leading players in the market, and its good earnings predictability and solid balance sheet lower the risk profile. We find the stock's valuation highly attractive. 

Reasonable market growth supported by megatrends expected in the coming years

The market for heavy material handling equipment like straddle and shuttle carriers, reachstackers, terminal tractors and forklift trucks is global. It is divided between many customer industries, such as ports and terminals, heavy logistics, manufacturing and distribution. The equipment market is expected to grow by nearly 5% p.a. in 2024-2028, and growth is accelerated by the need to reduce emissions and the electrification of the equipment fleet, changes in logistics chains, increased productivity and safety requirements, and labor shortages. Kalmar’s response to these challenges is an all-electric product offering, connectivity, software and analytics solutions, and autonomous and user-assisted solutions. The core of the service market, almost equal in size to the new equipment market, is traditional spare parts and maintenance services. As electric equipment that requires less maintenance becomes more common, this market will grow slightly slower than the new equipment market, i.e. by just under +4% p.a. in 2024-2028. However, electrification and digitalization enable new services and service models.   

The strategy allows for market share accumulation

In addition to the product innovations mentioned above, Kalmar’s strategic focus is on growth in services by improving its position in its own extensive installed equipment base by offering new digital solutions and expanding in demanding maintenance and value-added services for electric equipment. The third focus area of the strategy is to improve operational and strategic performance through operational programs. Kalmar’s revenue growth target for 2024-2028 (+5% p.a.) is at market level, although we believe the company has prerequisites to increase its market share by utilizing the strong electric product offering in equipment sales and improving the position in the maintenance and other services of its own installed equipment base.

Kalmar’s growth is expected to start in 2025

After Kalmar’s weak order intake in 2023, the 2024 revenue will decrease and our forecast is -15% y/y. However, the accelerating growth of the entire market and the moderate increase in Kalmar’s market share will boost the revenue growth rate to +7% p.a. in 2025-2027. We estimate that the comparable EBIT margin of 2024 will fall to 11.5% from 13.0% in 2023, but will rise to 13.7% with volumes and efficiency programs in 2027, which is quite close to the strategic target of 15% in 2028. EPS growth in 2025-2027 is a nice +12% p.a. 

The stock's valuation level is very attractive

The valuation of Kalmar's stock is attractive with all indicators. The expected total return clearly exceeds the required return, the valuation discount to the peers is approximately -10…-30%, and the upside in the DCF is considerable. Possible positive share price drivers include news about electrification in heavy material handling progressing fast and related new orders from Kalmar, as well as additional information on the progress of the performance programs.