Cargotec Q3'24: Happy mood and MacGregor to be sold soon

Translation: Original published in Finnish on 10/24/2024 at 8:15 am EEST.

Cargotec's order intake in Q3 exceeded expectations, while revenue and margins were roughly in line. The increase in guidance for 2024 has again already been included in the forecasts. Our projections for 2024-2026 have nevertheless risen quite markedly. Based on the sum-of-the-parts calculation, there is still no justified upside in the Cargotec stock, and we maintain our Sell recommendation. However, the increase in value in the calculation brings the target price to EUR 51.0 (44.0), close to the mid-point of the sum-of-the-parts valuation range. 

Solid performance in Q3

In Q3, Hiab's order intake was 361 MEUR (+16% y/y), exceeding both own and especially consensus forecasts. Hiab’s tender base is quite high, but the time from offer to order has lengthened. Among the end customer markets, construction is challenging in the Nordic countries and Central Europe and fragmented in North America. Hiab emphasized that waiting for lower interest rates and thus lower financing costs is still slowing down decision-making. MacGrecor's order intake of 236 MEUR (+12% y/y) fell between our and consensus estimates. The shipyards were described as fully booked until 2028 and as much as 40% of MacGregor's order book will be delivered in 2026 or later. Hiab's Q3 revenue (-8% y/y) was slightly ahead of expectations, while MacGregor's revenue (+13% y/y) clearly missed forecasts. Hiab's profitability (adj. EBIT margin 15.3%) came in between our and the consensus forecasts but benefited from higher-than-expected volumes. MacGregor's EBIT margin of 9.6% was above our and consensus forecasts and would have been as high as 13.5% without the loss-making offshore projects. The group's low tax rate drove adjusted EPS well above expectations. Net operating cash flow was strong in Q3 and for the first time in history, the company was net debt-free. 

Forecasts keep going up

Demand growth prospects for Hiab are low in the short term. In the key markets of Europe and North America, Volvo Trucks forecasts a 12% decline in demand for heavy trucks in 2024 and zero change in 2025. Construction volume growth in 2025 is forecast to be in the range of +2% y/y in both regions. MacGregor's order intake will of course benefit from a solid flow of vessel orders from shipyards, which should ultimately increase the transaction price for the business. As in the Q2 report, Cargotec again raised its guidance for 2024, but both our and consensus forecasts were already in line with the new guidance prior to the report. With the strong Q3 report, our projections for the group for 2024-2026 have been increased. The changes are almost entirely revenue-based (Hiab: +5…+8%; MacGregor: -10…+10%), with margin expectations broadly unchanged.

There is little justified upside

The most meaningful way to look at the value of Cargotec in its current form is still the sum-of-the-parts calculation, which puts the value of the share at EUR 47...58. The potential change from the current share price to the end of the range is -13 to +6% with a midpoint of -3%. The sum-of-the-parts value is 15....20% higher than what was presented in connection with the Q2 report, driven by higher valuation multiples, forecast changes and Cargotec's strong cash flow. Based on the calculation, Cargotec's share has still no justified upside. Moreover, given the risk associated with MacGregor's sale price (which of course goes both ways), our cautious stance on the stock remains warranted.