Reflecting solid Q2 results and upgraded guidance with the pre-release, we lift our rep. EPS 24-27e by 6%. The 15% adj. EBITDA margin target, initially expected in 26, is likely to be reached in 24 thanks to service growing twice as fast as OE. We believe the CMD on 1-2 Oct will lend further support as VA models a 16% margin in 26. Only ~50% of the EUR400m buyback program has been executed at this point, while the company''s ~70% exposure to food and beverage should support a positive disconnect from ongoing macro weakness. We thus reiterate O/P with a new TP of EUR46 (vs. EUR43), implying 12.6x EV/EBITA 24/25e, which is fully in line with the 2014-23 average.
Q2 review - continued strength in service and solid OpFCF compensating for light orders
After the pre-release on 11 July, the focus of the final Q2 results was on growth in service (+12% y/y organic) and segment details (cont''d strength at SFT on all lines, LPT''s strong margin watered down by weak orders) vis-a-vis changes to divisional 24 targets (OSG: SFT up, LPT down) resulting in the new group adj. EBITDA margin target range of 14.9-15.2% (vs. 14.5-14.8%). OpFCF at EUR83m was solid given higher NWC in the absence of better orders (Q2/LTM b:b both at 0.97x).
Key conf. call takeaways - optimistic comments on H2 orders, strict on pricing
1) Demand: the CEO suggested H2 orders above H1''s EUR2.65bn, and thus would be comfortable with VA''s EUR2.7bn forecast, as could be presumed from the guidance hike. 2) Pricing: similar to Krones, mgmt. stated that ''pricing has become more of an issue'', adding that GEA is keeping prices stable. 3) Capex: although only EUR68m was spent in H1, the CFO confirmed the EUR260m budget for 24, adding that this should come down to EUR200m, if not less, in outer years.
Reiterate O/P with new EUR46 TP - risk-reward still leaning to the positive side
While we raise our adj. EBITA 24-27e by 1%, the EPS impact is 6%, reflecting the lower share count. We sit LSD-MSD above...
