GEA's Large Order Book Going Into 2023 Should Help It Weather Macroeconomic Headwinds

GEA Group's third-quarter results were reassuringly solid with 10% organic sales growth and EBITDA margin up 50 basis points to 14.7%. However, orders were down just under 1% organically on a tough year-ago comparison. Even so, demand seems to be slowing with some potential projects in the pipeline perhaps having less chance of conversion to orders due to customer delays. Capital expenditure outlays are the first to come under budget scrutiny in a downturn. Therefore, we would expect orders to be soft during 2023 from potential macroeconomic headwinds. That doesn't change our long-term outlook for the company as food processing equipment serves a critical role in efficient food production. However, we have made adjustments to our forecasts. GEA is in an advantageous position coming into 2023 as it has a large backlog of orders that when executed will support revenue in 2023, even if orders slow down. Therefore, we forecast higher revenue growth in 2023 versus 2024 as we factor in a slowdown during 2023 orders hitting 2024 revenue. All that said, our fair value remains EUR 43 and we retain our wide moat rating.