Wärtsilä (Buy, TP: EUR13.00) - Set for Q3e margin beat
Set for Q3e margin beatWe are positive ahead of the Q3 results: risks concerning the timing of Energy orders are well flagged, and clean EBIT margin expansion could surprise on the upside, in our view. We have raised our 2023–2025e clean EPS by c3% on average, and we reiterate our BUY and EUR13 target price.
Q3 preview. We expect orders of EUR1,578m, down 2% YOY – up for Marine and Service, but down for Energy YOY. Wärtsilä has flagged slow thermal plant decision-making as affecting the timing of order bookings, but also that the pipeline is healthy. Management has indicated a pick-up in Energy storage activity, as customers are now less hesitant, but for Q3 there have been no announced storage orders and few preannounced orders overall. We expect clean EBIT of EUR128m, and an 8.6% margin, up 290bp YOY (EBIT of EUR82m and margin of 5.7% in Q3 2022). Detailed pre-Q3 consensus is not yet available, but our Q3e orders are 4% below post-Q2 consensus, while our clean EBIT is 4% above. Consensus is for an 8.1% clean EBIT margin, up 240bp YOY, versus the 270bp YOY increase in Q2, adjusted for the provision, which we find too cautious. The results are due on 31 October (no details available, but usually at 07:30 CET, followed by a results briefing at 09:00 CET).
Market outlook. Wärtsilä expects 12-month demand to be similar YOY in Marine and Energy. The Energy outlook reflects slowed decision-making surrounding thermal plants in Europe and Asia, but assumes better thermal orders in H2 than in H1. The company has signalled continued positive momentum in Service. Wärtsilä does not issue financial guidance, but has communicated more positive than negative drivers, indicating decent clean EBIT margin trends for 2023. We still expect clean EBIT margin expansion for 2023 YOY, helped by Service growth, phasing of mispriced deliveries (confirmed to have been delivered in Q3), and improved orderbook quality, reducing losses in Voyage and turning Storage to profit.
BUY and EUR13 target price reiterated. We have increased our 2023–2025e clean EPS by c3% on average, mainly related to FX effects and our raised Service forecasts. In our view, Wärtsilä’s end-market exposure, profit expansion outlook and valuation remain attractive, and the recent share price weakness offers solid rebound potential.
Wartsila provides lifecycle power solutions for the marine and energy markets. Co.'s operations can be divided into three segments: Power Plants, in which Co. is a supplier of flexible baseload power plants of up to 600 MW operating on various gaseous and liquid fuels; Ship Power, in which Co. is a provider of products and integrated solutions such as medium-speed diesel and gas engines, low-speed engines, propulsion systems and gears, and seals and bearings; as well as Services, in which Co. supports its customers throughout the life cycle of their installations and provides services including spare parts to operational and maintenance service for both the energy and marine markets.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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