Hiab And MacGregor's Revenue Growth At Risk Due To Customer Delays And Saturated Shipyards

Key Takeaways

• Delayed customer decisions and high financing costs may hinder Hiab's revenue growth, affecting overall investor sentiment.
  
• MacGregor's profitability is uncertain with potential net margin compression and limited sales growth from offshore projects.
  
• Strong operating performance and increased orders, along with strategic transitions and innovation, suggest stable or rising revenue and earnings potential for Cargotec.

Catalysts

Provides cargo handling solutions and services in Finland, Europe, the Middle East, Africa, the United States, rest of the Americas, China, and rest of Asia-Pacific countries.

• Investors may be concerned about Hiab's future revenue growth, given the expectation that customer decision-making is being postponed due to high financing costs and hopes for future interest rate cuts, potentially stalling revenue growth.
  
• The expectation of a standalone MacGregor resulting in a 1% fixed cost increase could lead to a compression in net margins, affecting future profitability.
  
• With the MacGregor backlog containing only 5-10% offshore projects, future sales growth might be limited due to the already saturated capacity at shipyards for 2025, projecting a lackluster revenue trajectory.
  
• The anticipated conclusion of loss-making offshore projects in 2024 suggests an improvement in current earnings, but uncertainty about future profitability of new offshore orders could impact market confidence in sustained earnings growth.
  
• Long-term decision-making delays by customers due to financing costs could lead to a near-term stabilization rather than growth in Hiab’s order intake, potentially limiting topline revenue growth and affecting investor sentiment.

Cargotec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cargotec's revenue will decrease by -16.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 8.9% in 3 years time.
• Analysts expect earnings to reach €241.8 million (and earnings per share of €3.77) by about December 2027, down from €334.4 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €271.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.6x on those 2027 earnings, up from 9.9x today. This future PE is lower than the current PE for the GB Machinery industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Cargotec Future Earnings Per Share Growth

Risks

• The company has demonstrated strong operating performance with significant profitability and exceptionally strong cash flow across its divisions, which could indicate stable or rising revenue and earnings in the future.
  
• Cargotec has seen an increase in orders received, with MacGregor and Hiab experiencing 12% and 16% year-on-year growth, respectively, suggesting potential for continued revenue growth.
  
• MacGregor's order book is now over €1 billion, providing good visibility for revenue in the coming years, and indicates a strong demand environment in its markets, which could support stable or increased earnings.
  
• The transition activities, including the separation of Kalmar and the planned carve-out of MacGregor, are progressing as planned and could lead to streamlined operations with potential positive impacts on net margins and profitability.
  
• Strong performance in service sales and innovation in product offerings at Hiab, including the development of new green technologies, may improve revenue streams and strengthen market position, thus positively impacting future earnings.

Valuation

• The analysts have a consensus price target of €55.4 for Cargotec based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €2.7 billion, earnings will come to €241.8 million, and it would be trading on a PE ratio of 17.6x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of €51.96, the analyst's price target of €55.4 is 6.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.