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Volvo’s Q2 22 figures landed ahead of estimates as both the price mix to offset cost inflation and volumes came in better than expected. Order intake remains an irrelevant KPI as the group is sticking to its order restrictions strategy. Management said visibility is still low on supply-chain disruptions, but rising trucks deliveries figures suggest the situation is easing. While raw material prices are decreasing, Volvo does not seem in a hurry to cut its own prices.
Companies: Volvo (VOLV-B:STO)Volvo AB Class B (VOLV.B:OME)
Volvo came back on its 2020 CMD with a service-focused top-line growth strategy triggered by the transition to EV and automated trucks. Management sees EVs generating 1.5x more revenues than Diesel versions over their life cycle, >5x for autonomous solutions. The pluri-engine scenario is still up to date but with low visibility on the development costs called by the electrification and automation of the portfolio. Note, however, that truck production looks to be better set up than autos to integ
Q4 21 operating margin was broadly in line as sales beat consensus on the back of higher pricing and higher deliveries and margins were below estimates due to headwinds on the cost side. The reopening of the order book pumped the truck order intake but management keeps on its lead time containment strategy entering 2022. Extra dividend was expected higher. Investment needs to prevent a too fast increase in short-term shareholder returns.
Q321 sales were in line with expectation, while Volvo posted a 9% beat on operating profit as pricing, CE product mix and service volumes offset the inflation in input and logistics costs. This indicates satisfactory handling of the supply chain bottlenecks despite management’s stress on low visibility. Order intake does not reflect the strong demand due to selectivity, to so as to avoid overlengthening the backlog. The FY21 market forecasts were in line with expectation while those for FY22 loo
Q2 21 globally in line with consensus as Trucks saw the sequel of one month of production stoppage by record demand for CE. The market outlook for H2 is bright, outlined by raised forecasts on Chinese trucks and CE in all regions except China. Nevertheless, peaking raw material and freight prices, along with probable production halts are on the menu for H2, putting both margins and WC at risk.
Q1 21 was better than expected on the margin front (12.6% adjusted operating margin), while sales surged by 13% on the back of strong demand for new products and services. Net order intake was also remarkable as truck orders doubled yoy. Despite the risk of semiconductor shortages in the supply chain, Volvo raised its HD truck market outlook by c.10% in China while confirming its FY21 expectations the other regions.
Volvo surprised with better-than-expected results especially in trucks with the order intake soaring 61% yoy and even 167% yoy in North America. Cash generation is finally back leading to an industrial net cash position up 19% yoy and supporting a SEK15 dividend proposal. Looking into 2021, Volvo is confident of a maintained demand for trucks and raised its forecasts by 90,000 units.
Companies: Volvo AB Class B
Volvo’s Q3 20 sales contraction (-22% yoy) was driven percentage-wise by buses (-39% yoy), while, in absolute terms, trucks drove the fall (-26% yoy). Despite this contraction, net income fell by 23.2% yoy, aided by lower selling expenses (-28.1% yoy) and a favourable tax ruling in Brazil (+SEK447m). As recovery begins to take form, the company still remains cautious by setting a SEK363m credit provision (+124.1% yoy). Overall, we maintain our expectation of a slow/multi-year recovery.
Volvo’s Q1 revenue saw a 14% yoy contraction, 8% above expectations. As expected, Q1 20 vehicle sales decreased by 20% yoy, which came mainly from a significant revenue contraction of 25% yoy in North America (second largest geographical revenue source) and -12% yoy in Europe (Volvo’s largest geographical market). Taking into account Volvo’s deterioration in the order intake at the end of March in Europe and North America, we expect a more significant revenue contraction yoy in Q2.
Volvo’s revenue of SEK432bn was in-line with our expectation while EBIT of SEK48bn was above our SEK42.7bn. The group’s profits clearly benefited from currency tail-wind. All divisions suffered falling order volumes in the last year. The rates of decline were between -1% (Construction Equipment) and -21% (Volvo Penta). Trucks saw its orders fall by 29%, but the rate of decline moderated to -10% in the last quarter. This is a clear indication that 2020 will be much tougher.
Volvo is the Western hemisphere’s second largest truck producer (226k in 2018) after Daimler (>500k) and says that it intends to form a strategic alliance with Japanese Isuzu (532k trucks of all weight classes plus SUVs and Pick-up trucks). In a first step, Volvo sells its Japanese operation (called UD) to strengthen the two companies’ position in heavy trucks.
Orders for new trucks fell sharply in the last quarter and a slight fall was also experienced in Construction Equipment. Although truck deliveries fell as well, the divisional operating margin was slightly up. However, Construction Equipment has started to experience a slight profit margin fall.
Trucks and Construction Equipment contribute a total of 85% to Volvo’s consolidated sales and almost 90% to its EBIT. US heavy truck sales were up by 11% in the last month and Caterpillar’s worldwide machines sales increased by 4% in all of the last three months.
Volvo’s revenue and earnings are generated with trucks (63% and 64% in H1 19, respectively) and construction equipment (22% and 28%). These highly cyclical businesses have continued doing very well in Q2, but trucks have started to see falling order inflow as have buses.
Much stronger than expected volume growth in the Americas combined with Swedish kronor weakness have translated into much stronger than anticipated revenue and profit growth.
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Today’s trading update for H1 22 highlights the difficult operating environment over the first six months of the year, particularly in Q1. Trading picked up in Q2 and is expected to continue to improve in H2 22, in part, due to the inherent seasonality of the business, but also due to some catch up in demand. Guidance is for FY22 post-tax profit to be in line with the consensus estimate of £32.2m, as a result Zeus reduces its estimate by 2.5% to £32.2m. Previous guidance of £3.0m potential impac
Companies: Strix Group PLC
Last week, the UK government published the consultation paper on its Review of Electricity Market Arrangements (REMA). Any change potentially represents uncertainty in a market that has been wary of changes with a number of shares falling after early details of possible reforms were flagged in the press. We review the possible changes and conclude that while there is some risk, from what we can see at present the likely outcomes could be either minimal or beneficial for investors in clean energy
Companies: EQT IES DRX NESF PHE SAE
Companies: Crestchic PLC
Invinity has begun trading shares on the OTCQX Best Market in the USA. We see this as adding liquidity for North American investors and more generally increasing visibility for the company in key markets in North America.
Companies: Invinity Energy Systems PLC
Dish of the day
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What’s cooking in the IPO kitchen?**
Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group exports
Companies: UJO FAB HAT HZM SYM TRAC
The US Inflation Reduction Act of 2022 now has a chance of passing the Senate next week as it is being voted under the Reconciliation procedure which allows bills related to the budget to pass on a simple majority rather than the 60-vote majority required to overcome a filibuster. If the act does find its way onto the statue books it will bring US$369bn in clean energy tax credits, grants and other incentives. Much is directed to protecting clean energy manufacturing in the USA, but it is a wide
Companies: IES DRX ITM VLS
Dish of the day
No joiners today.
No leavers today.
What’s cooking in the IPO kitchen?
Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group export
Companies: SDI FUL PURP OSI IXI BSE BRSD ATM
Oil posted the biggest weekly decline since early April on growing signs that a global economic slowdown is curbing demand. Prices are near the lowest level in six months.
West Texas Intermediate settled at $89 a barrel, ending the week nearly 10% lower. US gasoline consumption has dropped, stoking demand concerns, while low liquidity has added to volatility. Supplies from Libya also picked up, helping to shrink key oil futures time-spreads and ease the tightness in the market.
Companies: FO 88E CHAR DEC EME GTC TRIN WEN
Companies: Staffline Group plc
Rolls Royce published mixed figures. Profitability was particularly low, pushing the net result back into the red zone. However, FCF generation was a positive surprise despite the rise in inventory. It has finally found an agreement to sell ITP Aero and will use the resulting cash to repay its only floating interest rate debt.
Companies: Rolls-Royce Holdings plc
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We revise our estimates, primarily to incorporate the Paro acquisition, resulting in an average 3% increase in our forecasts for diluted EPS through FY25. Renewi's FY22 results demonstrated that its business and financial performance have moved to a new level, underscored by the positive 1QFY23/AGM update. While Renewi has started to re-rate, we continue to believe that the share price has yet to reflect the transformation in the company's earnings power fully, while the potential ECP bid for Bi
Companies: Renewi Plc