RCB Company Update: Palfinger confirmed at BUY, TP EUR 36 - Trimming earnings growth but upside prevails
We maintain the BUY recommendation for Palfinger but owing to lower estimates have trimmed the target price to EUR 36 from EUR 37. In our view, 2Q brought a confirmation of the trading framework for truck and marine cranes. While demand for the former remains strong across the product range (particularly in Europe), for the latter the company reiterated the perception of a bottoming-out of order momentum. However, we think that the management needs to overcome issues in both segments in order to trigger a re-rating of the shares. For truck cranes this foremost concerns the bottlenecks for various components that hold back higher output at the European sites (restructuring in North America was largely concluded in 1H 18).
Importantly, improved production rates as of September were flagged, which suggests that more scale effects should filter through towards year-end. Despite the aforementioned delivery issues, customers are willing to accept longer lead times as well as higher selling prices as a result of higher steel costs, which we treat as an encouraging sign. The problem child remains the Sea division, where despite the scope for a demand stabilisation, the fixed cost base needs to be streamlined further, in turn commanding higher than previously expected restructuring costs (we now assume also some costs weighing on 2019e and break-even on the adjusted level to be reached only next year).
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