Cargotec Q4'24: Too much yeast in the valuation dough

Translation: Original published in Finnish on 2/13/2025 at 8:32 am EET.

The adjusted Q4 numbers were better than consensus expectations, and the strong balance sheet now enables an additional dividend. Cargotec's demand outlook is flat and the 2025 margin guidance is cautious, but there was room for an increase. The share is still expensive by all metrics we use. We lower our recommendation to Sell and set our target price at EUR 42.00 (was EUR 51.00). 

Q4 figures better than market expectations

Cargotec’s order intake (+3 % y/y) in Q4 exceeded both our (+2% y/y) and the consensus estimate (-7 % y/y). However, high financing costs continue to dampen activity and demand from the construction sector is weak. Q4 revenue  (-8% y/y) was slightly higher than expected, although clearly down year-on-year. Cargotec recorded -15 MEUR of Hiab's restructuring costs above comparable EBIT in Q4, which resulted in EBIT being significantly below expectations. Excluding this expense item, the EBIT margin would have been 13.6%, which is between our and the consensus expectations. As a result of the restructuring, Cargotec's net debt from continuing operations at year-end was -70 MEUR, and if the still pending cash flow of 220 MEUR from the sale of MacGregor had already been realized in Q4'24, net debt would have been -290 MEUR. The board proposes an ordinary dividend of EUR 1.19/1.20 and, in the event of the sale of MacGregor, an additional dividend of EUR 1.56/1.57, which would bring the yield up to 5.8%. 

First stable, then slight upturn

Cargotec’s comments on the demand outlook were almost unchanged. The demand situation in the Americas is better than in Europe or APAC. In Europe, demand is moderate in the retail as well as waste and recycling sectors, but weak in construction. Overall, Cargotec expects order intake to remain stable in the future. The company's guidance for 2025 is a comparable EBIT margin above 12.0%, compared to an actual EBIT margin of 13.2% in 2024. This is a clear disappointment as our own expectation before the report was 14.0% and the consensus was 13.8%. However, Cargotec considers 12% to be a base level and is aiming higher. Our forecasts for 2025 are almost unchanged, but we have raised our 2026 revenue estimate by 2% (now 4% y/y growth) and our adjusted EBIT estimate by 6% (margin now 14.3% vs. previous 13.7%). In our forecasts, we have given slightly more room than before to Cargotec's positive margin drivers (volume growth/operational leverage, excellence programs and an improving sales mix through an increasing share of services in revenue).    

Share valuation hits ceiling

Although Cargotec's Q4 numbers were in line with or better than expectations and we have raised our estimates for 2026, the share is still expensive by all metrics we use. The company’s negative net debt lowers the risk profile, but the premium valuation is still too high. We believe that after the MacGregor divestment and the additional dividend distribution, investors will start to focus more clearly on earnings growth outlook and justified valuation levels. Signs of this were already visible in the share price decline on the day of the Q4 results (-6%).

Cargotec's total expected return on the share is negative based on EV/EBITDA and EV/EBIT multiples for 2025-2026, and the risk-adjusted expected return is therefore very weak. EV/EBIT suggests a valuation premium of +20...+36% for the stock at 2025-2026 multiples, i.e. the stock appears to be overpriced. The DCF model suggests a full valuation of the stock and a change potential of -4%, which is in line with other valuation models.