A High Order Backlog Level Gives GEA High Visibility in 2023 Revenue

Strong order growth and pricing supported GEA’s G1A nearly 9% organic revenue growth for 2022, well above the 3%-4% rate we would expect its market to grow at on a midcycle level. Notable 2022 revenue drivers included automated milking equipment, new food machinery (for alternative proteins), and service revenue. The business also saw several large orders during the year. Generally, this is a signal that the market is closer to peak cycle with larger orders contributing to a higher portion of the order book during peak times. For 2023, management expects organic revenue growth above 5%. Although this figure would also be above the average midcycle level, the guidance looks achievable given the usually high degree of visibility that the company’s high order backlog is providing for 2023 revenue. Roughly three quarters of the 2023 expected machinery revenue is already in the order backlog. We maintain our wide moat rating. Shares are trading in line with our EUR 43 fair value estimate.

The adjusted EBITDA margin progression, up 50 basis points year over year to 13.8%, was solid, but not as remarkable as revenue growth. We expect more margin upside over the next couple of years, as the company’s restructuring program kicks in to a higher degree. The key drivers for the restructuring include procurement savings and manufacturing productivity gains through automation. The two tracts of savings are still in the early stages and should be more visible for the margin in the next two to three years. Management is targeting an adjusted EBITDA margin of greater than 15% in 2026, while our forecast is slightly more cautious at just below 15%. However, the business should see margin expansion in 2023 through increased pricing in 2022, which now sits in the order backlog that will convert to revenue over the year. Notably, pricing will likely be a more material contributor to 2023 margin expansion than restructuring savings.