Wartsila’s First Quarter Hit by the War in Ukraine; Demand Expected to Be Weaker

Narrow-moat Wartsila was able to report a decent first quarter despite being hit heavily by the war in Russia. An impairment of EUR 200 million was recognized in the first quarter, which is required to downscale Russian operations whereas the indirect impact of sanctions has accelerated existing cost inflation, particularly in the group’s fast-growing energy storage value chain, which has caused customers to delay investments due to higher pricing. Order intake grew by 11%, supported by strong demand for marine equipment, which managed to offset slower demand from the historically faster-growing energy segment. Management cautioned of slower demand in the second quarter as cost inflation headwinds persist and the lockdown in China hampers the group’s ability to perform aftermarket marine services. We maintain our EUR 11.5 fair value estimate and view shares as undervalued. We emphasise the group’s high uncertainty rating due to highly cyclical end-markets, which are being exasperated by current conditions.