Translation: Original published in Finnish on 11/4/2024 at 8:17 am EET

Kalmar's Q3 figures were either in line with or better than our expectations across the board. The market comments contained no surprises, and even though the Q4’24 margin will fall from Q3’24, we made upward forecast changes. However, the +13% price rally following the Q3 report has reduced the justified upside of the share to an extent that we cut our recommendation to Accumulate (was Buy). Our new target price is EUR 35.00 (was EUR 33.00), with the hike based especially on our 2025 forecast changes.

Impressive number performance in Q3

Kalmar's Q3 orders (+6% y/y) were in line with our forecast and clearly better than the consensus expectation. Growth was steady in both Equipment (+7% y/y) and Services (+5% y/y). Demand in customer segments was subdued in the distribution sector, but still good in ports and terminals, heavy logistics, and even in the metal and forest industries. The Group’s Q3 revenue (-16% y/y) was in line with our forecast and slightly above consensus. Equipment revenue decreased by -19% y/y, due to the normalization of order intake after the post-pandemic boom. Service revenue increased slightly and the share of services in revenue rose to 33% (Q3’23: 28%). Comparable Q3 profitability (EBIT margin 13.5%) was well above the forecasts and a positive surprise. The strongest support for profitability came from the margin increase in services to 18.3% (Q3’23: 16.1%), which was due to revenue focusing on wear and spare parts instead of personnel-oriented maintenance. There were no major surprises in items affecting comparability or financial items, and the adjusted EPS ended up nicely above the forecasts. 

Upward, slowly but surely

In its market comments, Kalmar stated that ‘overall demand has remained stable despite some prolonged softness in the North American market’ and that ‘our sales pipeline remains healthy’. According to recent market forecasts presented by Kalmar, the market of target customers (e.g. global container traffic, factory production and private consumption) will grow at an annual rate of +2…+3% in 2025-2026. Kalmar raised its 2024 guidance and now expects its comparable EBIT margin to be >12% (cf. >11%). This guidance is not demanding, as the EBIT margin for Q1-Q3’24 was 12.8%. However, Kalmar stated that it does not expect the Q4’24 EBIT margin to rise to the 13.5% level of Q3'24. The company referred to Q4’s lower-margin sales mix, both between and within businesses. Based on Kalmar’s Q3 report and the market comments and forecasts presented, we had no reason to change our revenue forecasts for 2024-2026 (CAGR = +4.6%). However, Kalmar’s good performance in Q3 made us clearly raise our margin forecast for 2025 and our forecasts for 2026-2027 more moderately. Our new forecasts are as follows: 2025e: 12.7% (was 12.0%); 2026e: 13.1% (12.9%) and 2027e: 13.9% (13.8%).

Valuation is still attractive

With 2025 EVEBITDA and EV/EBIT ratios (9x and 11x), the total expected return for Kalmar's share is +11…+16% per year, i.e., above the 10% required ROE . Overall, the risk-adjusted return is still attractive. Kalmar’s EV/EBIT ratio for 2025 is at a -7% discount to the median of the peers, i.e. the share is cheap in peer pricing, but this is naturally no longer a significant discount. The DCF model gives the stock an upside of +21%. The potential is reasonable but has clearly narrowed with the share price rise.