Cadeler A/S

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Cadeler A/S is a key player in the offshore wind turbine installation (WTIV) and maintenance market, facing a competitive and evolving industry landscape.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Cadeler A/S, headquartered in Denmark, operates in the offshore wind energy sector, specializing in the transport and installation of offshore wind turbines and foundations. The company owns and operates a fleet of Wind Turbine Installation Vessels (WTIVs), essential for constructing and maintaining offshore wind farms.

  • Revenue Distribution: Cadeler’s revenue is primarily derived from long-term charter agreements with wind turbine manufacturers, offshore wind farm developers, and other players in the renewable energy sector. The company’s vessels are contracted for specific projects, providing a relatively predictable revenue stream for the duration of the contract.

  • Industry Trends: The offshore wind industry is experiencing significant growth, driven by global efforts to transition to renewable energy sources. Key trends include:

    • Increased turbine size and capacity, requiring larger and more sophisticated WTIVs.
    • Expansion of offshore wind farms into deeper waters and more challenging environments.
    • Growing demand for maintenance and servicing of existing wind farms.
    • Government support and incentives for offshore wind development.

  • Competitive Landscape: The WTIV market is relatively concentrated, with a limited number of specialized vessel operators. Cadeler competes with companies such as:

    • Ørsted
    • Eneti Inc.
    • Jan De Nul Group
    • Seaway 7
    • Van Oord
The competitive landscape is intensifying as new players enter the market and existing players expand their fleets. *   **What Makes Cadeler Different:** Cadeler differentiates itself through:

*   A modern and versatile fleet of WTIVs capable of handling the largest wind turbines.
*   Experienced and skilled crew and project management teams.
*   A strong track record of successful project execution.
*   A commitment to innovation and technological advancement.
*   Strategic partnerships and collaborations within the industry.

Moat Analysis: 2 / 5

Cadeler’s moat can be described as narrow and developing.

  • Economic Moats:

    • Switching Costs: Low. Wind farm developers select WTIV providers based on price, availability, vessel capabilities, and track record for each project. Once selected, the provider has to set up and test the vessel and the crew, and thus it may not be ideal to switch at all.
    • Intangible Assets: Some reputation, but not enough to create a strong brand.
    • Cost Advantages: Not very apparent. WTIV operators with modern vessels and efficient operations have some cost advantages over older and less efficient competitors.
    • Network Effect: Non-existent.
    • Scale: Economies of Scale are available to companies such as Cadeler, larger companies with many vessels can spread their fixed costs, making it an advantage. Overall, Cadeler doesn’t really have a moat because a lot of these strengths can be acquired by the competitors, and competition for the WTIVs is constantly increasing. They are very likely to start getting commoditized because a lot of people are able to replicate them.

  • Justification for Rating: The industry requires massive costs to enter, specialized vessels, and skilled labor. However, once such things are fulfilled, the vessels are mostly commoditized, without much price increases.

  • Legitimate Risks to the Moat:

    • Technological Disruption: The development of new installation technologies or alternative energy sources could reduce the demand for WTIVs.
    • Increased Competition: Entry of new players or expansion of existing players’ fleets could erode Cadeler’s market share and pricing power.
    • Erosion of Moat: The WTIV space is very sensitive to new entrants, and since it is a competitive market, it’s hard for them to hold on to profitability.

  • Business Resilience:

    • Cadeler has a strong backlog of contracted projects, providing revenue visibility and stability.
    • The company’s focus on high-growth markets and specialized services positions it for long-term success.
    • The offshore wind industry is supported by long-term government policies and incentives, providing a stable demand outlook.

Financial Analysis

The following data and analysis take into account publicly available information from financial reports and earnings calls, with a focus on recent developments. Please bear in mind, especially with companies that had recently merged/acquired, some data may not be entirely accurate or precise.

  • Revenue and Profitability:

    • Cadeler experienced growth in revenue, driven by increased vessel utilization and higher charter rates.
    • However, profitability has been impacted by cost overruns on certain projects and integration expenses related to acquisitions.
  • Revenue (EUR million)
    • 2023: 115.4
    • 2022: 87.3
    • 2021: 62.2
  • Net Profit (EUR million)
    • 2023: -3.0
    • 2022: -24.7
    • 2021: -2.6

  • Margins:

    • Cadeler’s EBITDA margin has been volatile, reflecting project-specific factors and industry dynamics.
    • The company aims to improve profitability through cost optimization and efficient project execution.

  • Debt and Liquidity:

    • Cadeler has a solid balance sheet. Debt levels are reasonable, and the company has sufficient liquidity to fund its operations and expansion plans.
  • Cash and Equivalents (EUR million)
    • 2023: 121.8
    • 2022: 123.4
    • 2021: 143.5
  • Total Equity (EUR million)
    • 2023: 569.6
    • 2022: 384.0
    • 2021: 353.2

  • Recent Concerns:

    • Cost overruns on the Wind Orca vessel upgrade contributed to a disappointing Q1 2024 report.
    • Market volatility and project delays can impact vessel utilization and profitability.
    • The integration of acquired businesses presents challenges and risks.
    • Competition for WTIVs.
  • Management Perspective:

* Management acknowledges the challenges and is focused on executing projects efficiently and controlling costs. * They are optimistic about the long-term growth prospects of the offshore wind industry and Cadeler’s position in the market. * Management is committed to delivering value to shareholders through organic growth, strategic acquisitions, and efficient capital allocation.

  • Recent Developments:

    • Cadeler has a current market cap of $850 million as of May 2024.
    • Order backlog has been decreasing in recent years, with backlog of €447M as of 2023. The high backlog was mainly achieved due to acquiring Esvagt Offshore Wind Solutions, a company that is part of the ESVAGT group.
    • Q1 2024 revenue increased to EUR 31 million and gross profit declined to €5 million. This was mainly due to the Wind Orca outage.

* The company confirmed its 2024 revenue guidance of EUR 125-135 million and maintained its long-term target of a €100 million EBITDA run rate by 2026. * The number of competitors is increasing, and the WTIVs start to get commoditized.

Understandability: 3 / 5

  • The business of installing and maintaining offshore wind turbines is not difficult to grasp at a high level. The factors driving revenue (number of vessels, utilization rates, day rates) are also relatively straightforward.
  • However, a deeper understanding requires knowledge of the offshore wind industry, WTIV technology, project management, and financial accounting.

* The complex accounting and project-specific factors make it harder to follow their financial performances.

Balance Sheet Health: 4 / 5

  • Cadeler’s balance sheet can be described as healthy.
  • Reasonable debt levels and sufficient liquidity.

* But the fact that the company has negative retained earnings means that the company is still in the starting phases.

  • Good total equity, at EUR 569.6 million as of 2023.
  • While their debt looks to be managed effectively, it is still hard to say that it will remain stable over the years.