Wartsila’s Full-Year Profit Disappoints as Cost Pressure Persists; Shares Fairly Valued

Narrow-moat Wartsila reported a 41% decline in its comparable operating profit during fourth-quarter 2022, which took the total decline for the full year to 9%. The biggest contributor was its energy segment, where cost inflation on the group’s existing projects have led to an increase in provisions, combined with an unfavorable sales mix, driven by revenue more than doubling in its lossmaking energy storage business. Management has guided for demand to exceed 2022, entirely driven an increase in demand for the group's energy solutions. We anticipate that Wartsila will continue to deliver robust revenue growth, as its energy and marine customers seek to decarbonize their operations, but expect profitability to remain well below its 12% EBIT margin target. We maintain our EUR 9.20 fair value estimate and view shares as fairly valued, after a rally during the past three months.