Wartsila Earnings: Order Intake and Profitability Beat Estimates, but Long-Term Target Still Unlikely

Narrow-moat Wartsila WRT1V delivered an impressive quarter, reporting organic order intake growth of 21%, comfortably ahead of company-compiled consensus. Service revenue grew 16% during the quarter, which led to a favourable sales mix, and combined with improving profitability within the fast-growing energy storage business, supported EBITA margin expansion of 130 basis points to 7.4%. While we commend Wartsila’s improvement in profitability, it is still some way from its 12% operating margin target and our 9% medium-term margin expectation. We reiterate our EUR 9.20 fair value estimate and view shares as fairly valued.

Organic revenue grew 7% during the quarter driven by strong demand for services, which offset a decline in equipment revenue. The energy storage division reported 76% growth, albeit against a low base, during the quarter. Wartsila’s book/bill ratio is 1.2 times, a leading indicator that revenue growth is likely to improve in the short term. The order book has grown 5% to EUR 6.2 billion, of which 40% is expected to be delivered by the end of the year.