Analyst Note| Matthew Donen, CFA |
Narrow-moat Wartsila revealed new financial targets at its investor day, which does not materially differ from previous ambitions. Management aims to achieve 5% annual revenue growth over the business cycle at a 12% operating margin. However, management was unable to provide the timing of achieving the margin, which is partially dependent on uncontrollable factors such as decarbonization regulation and a recovery in the cruise segment. New EBIT margin guidance of 12% is at the midpoint of the group’s prior target of between 10% and 14%. We believe 12% is ambitious in the near term due to current cost inflation and a fast-growing but loss-making energy storage business. We slightly raise our fair value estimate to EUR 10.8 from EUR 10.2 to account for the rapid growth of Wartsila’s energy storage business, which we expect to persist but keep our margin estimates largely unchanged. Shares are currently fairly valued.