Kalmar Q2'24: Start of the party postponed

This report is a summary translation of the report “Juhlien alkamisajankohtaa lykätty” published on 8/0/2024 at 0:25 am EEST.

Kalmar's Q2 orders were disappointing, but profitability numbers were good. The company continues to expect a stable market in 2024-2025 and maintained its previous guidance for 2024. We have modeled a postponement of around 6 months to our previous 2024-2026 projections. The valuation of the stock is very attractive, and we maintain our Buy recommendation. As we have slightly lowered our forecasts for the coming years, we lower our price target to EUR 33.00 (was EUR 36.00). 

Q2 orders took a hit, profitability held up well

Kalmar's Q2 orders (-14% y/y) were a disappointment, driven by Equipment orders (-21% y/y). Service orders increased slightly. There was a softness in the North American distribution customer segment, particularly for terminal tractors, and delays in decision making for the largest orders. In other geographic areas, demand was described as normal. The market challenges have affected all operators, and Kalmar has not lost market share. The company's revenue was broadly in line with forecasts. Given the sharp decline in revenue, the gross margin of 26.5% was a significant positive surprise. According to Kalmar, most of the volume-related decline in the group's comparable EBIT was offset by operational efficiency improvements (sales mix, pricing, manufacturing cost management) and fixed cost reductions. The comparable EBIT margin (12.6%) was well above forecasts. Reported EBIT was negatively impacted by de-merger and listing costs of -16 MEUR, which were not included in the consensus forecast.  

Upswing is coming, but later than expected

In its market comments, Kalmar reiterated its earlier message that the market will be fairly stable between 2024 and 2025. According to the company, the demand picture has not changed from previous quarters. Small bright spots are Drewry's increase in the global container traffic growth forecast for 2024 to +4.0% and Kalmar's own fleet operating hours, which have increased year-on-year. Kalmar reiterated its 2024 guidance for a comparable EBIT margin of >11%, which was disappointing after a strong H1 profitability (12.4%). Prior to this report, the consensus forecast for the comparable EBIT margin in 2024 was 12.6%. We have modeled a lag of roughly six months on the order intake and revenue forecasts we presented in our Initiation of coverage report in early July. Our updated forecast for order intake growth (CAGR) for 2024-2026 is now +4.8% p.a. (was +5.7% p.a.). Our comparable EBIT margin forecasts are almost unchanged: we now expect 11.7% for 2024 (previously 11.7%), 12.0% for 2025 (12.3%) and 12.9% for 2026 (13.1%).

Investment story remains solid and valuation is low

Although our forecasts have been slightly reduced, Kalmar's investment story has not changed fundamentally. Growth prospects beyond 2025 are good and Kalmar has the potential to increase both market share and margins in the coming years. The share valuation is also very attractive. Based on the 2025 EV/EBIT multiple, the expected total return on the stock is +20% p.a., well above the 10% required return. The risk-adjusted return is therefore very attractive. The peer group's median EV/EBIT for 2025 is 10x compared to 9x for Kalmar, resulting in a valuation discount of -13%. On this basis, Kalmar's share is a bargain in terms of peer pricing. The DCF model gives the stock upside of +46%.