GEA Sees Excellent Order Growth, but Supply Chain Bottlenecks Hold Back Revenue; Shares Attractive

GEA Group’s book-to-bill spiked to 1.37 times in the first quarter with orders exceeding company-provided consensus but supply chain bottlenecks holding back revenue to modestly below expectations. Importantly, the company’s EBITDA margin was up 90 basis points to 12.3%. Management continued to prove its credibility on profit flow-through from restructuring gains. We forecast long-term EBITDA margins just above 14% as we believe that the company’s equipment holds pricing power, which previous management was unable to leverage. GEA Group’s food manufacturing end markets are made of conservative buyers, and vendor track records on equipment performance and hygiene features create an asymmetric risk/rewards relationship in switching equipment suppliers. GEA has a long-standing track record as premium supplier to many of the world’s largest food manufacturing groups. We maintain our EUR 43 fair value estimate and wide moat rating. Shares look attractive at current levels.