Following a weak FY16, Wacker Neuson NA O.N. (DE:WACGn) returned to its profitable growth path in 9M17, with sales up 12.7% y-o-y and adjusted EBIT margin up 300bp y-o-y to 9.5%. This was driven by the upturn in both construction and agricultural machinery markets. Management raised its FY17 sales guidance to the upper end of €1,450-1,500m from €1,400-1,450m in March. Solid balance sheet headroom (net debt/EBITDA FY17e at 0.9x) allows for further investments into extending WAC’s global reach (medium-term target of 40% sales outside Europe vs 25% in FY16). The shares are trading on a FY17e P/E of 20.7x, implying a c 18% discount to the peer average.
Europe and Americas driving results
WAC posted solid 9M17 results, with EPS growing by 55% y-o-y to €1.01 and sales improving by 12.7% y-o-y to €1,142.4m. Sales in Europe (73% of group revenues in 9M17) rose by 9.7% y-o-y supported by favourable trends in the construction industry, as well as a major demand revival in the agricultural machinery sector. Americas sales increased by 25.8% y-o-y to €273.1m on the back of good momentum in compact equipment, including the contribution from production ramp-up of skid steer loaders in US. Total adjusted EBIT margin reached 9.5% (up 300bp) supported by higher capacity utilisation, growth within the margin-attractive light equipment segment and cost improvements.
Recovery in global construction machinery ahead
Revised guidance for FY17 implies revenues at the upper end of €1,450m-1,500m (vs. €1,400m-€1,450m in March) and adjusted EBIT margin at the upper end of the 7.5% to 8.5% range. WAC’s results should be supported by the expected recovery in global construction machinery sales, which could achieve a 2016-2020 CAGR of 5.7% in volume terms according to Off-Highway Research. Demand for agricultural equipment should be helped by high investment appetite among landholders (eg in Germany), coupled with the below-average dealer inventory in Europe. WAC’s mid-term guidance is for sales of >€2.0bn and EBIT margin of >9%. Stronger collaboration with key customers (eg John Deere) should be an additional driver.
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