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We have screened what miners have said during the earnings season; most of them remain quite optimistic. A capex deterioration does not seem imminent and mining production is expected to grow. We remain positive on mining equipment names and prefer Metso Outotec and Weir Group. Macro uncertainty does not seem to be impacting mining capex plans... We have screened data and commentary from eleven of the world''s largest public mining companies to assess their near-term outlooks and capital expenditure. Most of them are talking about macro uncertainties, but they have not cut back on capex plans as demand for raw materials is expected to increase strongly over the next decade, partly driven by the energy transition and electrification trend. As Rio Tinto said: If we start adjusting our capex program because we think there is a recession in the next 6 months, we have lost it. We are in for the long haul here. Capex for our sample is expected increase by more than 20% in 2022. Most names included in our screening have now started to provide capex guidance for 2023, and a significant capex decline does not seem imminent. On aggregate, capex is expected to increase by 7% in 2023 compared to 2022. ... and mining production is expected to grow Production guidance from our sample population continues to indicate growth across several key metals, in part driven by a recovering demand-supply balance and the global energy transition. Disruptions and lower ore grades impacted production levels negatively in H1''22, but growth rates are expected to pick up strongly in H2. Our mining production tracker paints a similar picture and if it proves correct, an acceleration of mining production growth between Q3''22-Q2''23 should offer support to the aftermarket businesses of our mining equipment exposed names. How to play this? We prefer Metso Outotec and Weir Group We remain relatively positive on the mining equipment space. Our top picks are Metso Outotec and Weir...
SAND WEIR METSO EPIA 0HC0
It is time for Sandvik to say goodbye to Sandvik Materials Technology, which will change name to Alleima and be distributed to Sandvik shareholders. Thursday 25 August is the last day of trading in Sandvik shares with the right to the distribution of shares in Alleima. The first day of trading in Alleima''s shares on Nasdaq Stockholm will be 31 August. We take a brief look at the valuation of Alleima and the rest of Sandvik and maintain our Outperform rating. Sandvik Materials Technology will be distributed to shareholders and change name to Alleima Sandvik Materials Technology is a steel business that has underperformed the Sandvik Group for a long time, at the same time as it has consumed a relatively large share of group capex. We believe SMT has impacted the valuation of the group negatively and see the exit as a positive step. Sandvik Materials Technology will change name to Alleima and shareholders of Sandvik are entitled to receive one share in Alleima for every five shares held in Sandvik. Valuation of Alleima, which should account for less than 10% of Sandvik''s market cap In our SOTP, we have valued Alleima at an enterprise value (EV) of SEK 14.8bn, corresponding to SEK ~12 per Sandvik share. That is based on 7x EV/EBIT 2023e, which corresponds to 0.80x EV/sales. We have long argued for an EV between SEK 10bn and 15bn, corresponding to around SEK 8-12 per Sandvik shares. Alleima''s book value was SEK 15.4bn at the end of June and it had a net cash position of SEK 139m. Valuation of Sandvik We have a target price of SEK 235 for the Sandvik group, of which SEK ~12 relates to Alleima and SEK ~223 relates to the rest of Sandvik. Our target price of SEK 235 corresponds to 14x EV/EBITA and the target multiple (all else being equal) will increase to around 14.5x when Alleima is distributed to shareholders. We think the distribution of Alleima could support...
Sandvik AB Sandvik AB
Sandvik''s Q2 results came in on the weak side as cash flow and profitability disappointed at the same time as Mining and Rock Solutions missed Infront consensus expectations on both organic order growth and margins. Sandvik''s comments on demand in June and July has increased uncertainty, even though the company said that it has not seen a change in underlying demand. On the positive side, Sandvik''s CEO expects improvement in cash flow generation and organic leverage for H2. Relatively small deviations on a group level As can be seen in the deviation table on page 2, Sandvik''s Q2 results were not far from consensus and our estimates. Adjusted EBITA missed consensus by 1% explained by a weaker than expected margin, to large extent driven by cost inflation, and that is something that should start to ease on a net basis according to the company. Sandvik''s book-to-bill remained above 1x. We make only minor changes to our estimates We lowered our 2023-2024 earnings estimates in our Q2 preview and see no reason to lower them further at his point. We forecast 2023 organic revenue growth of -1% for the group, with relative weakness in SMM partly offset by strength in Sandvik''s mining and infrastructure businesses. FX will continue to give good support in the near term and Sandvik guides for a positive EBITA impact of SEK 1,050 in Q3, which would correspond to 20% EBITA increase y/y. Performance and valuation We maintain our target price of SEK 235, which corresponds to 14x EV/EBITA 2023e. We see ~40% upside in the share and reiterate our Outperform recommendation, but we expect near term volatility. Sandvik remains committed to spin off Alleima in August, even though a final decision will be taken in a few weeks. We expect mid-term structural growth in mining, which is Sandvik''s largest end market. Automotive, which is another important end-market for Sandvik, is already at low production levels and a recovery is expected in 2023.
The Q2 22 results were pretty decent given the context They still showed a decrease compared to Q1, mainly due to cost inflation We will revise down our estimates, mainly in terms of margin for the current year Our price target will go down, but our recommendation will remain unchanged at this level of valuation
Sandvik, like most other Capital Goods stocks, has suffered YTD as raw material prices have weakened and concerns around demand has been building. We take a more cautious view on 2023e and lower our organic estimate. Though we trimmed our TP to SEK 235 (from SEK 265), we still see c. 35% upside in Sandvik shares and hence maintain our Outperform rating. Q2''22 results on July 15th We forecast Q2 orders of SEK 27.6bn corresponding to organic growth of 5%. We expect organic order growth to turn negative later this year. Sandvik''s revenue has likely been impacted by China lockdowns and we are looking for SEK 25.2bn and adjusted EBITA of SEK 5,014m corresponding to a margin of 19.9%. Sandvik will report a non-recurring charge of SEK 1bn in Q2. We lower our estimates as a recession is looming We think supply issues will soon be replaced by demand issues and have updated our estimates for recent trading and FX. We have lowered our organic estimates significantly and we now forecast negative organic revenue growth of -2% in 2023e. However, a large part of our organic changes are offset by FX, and in total, we lower our adjusted EBITA estimates by 6% for 2023 and by 1% for 2024. We are almost 15% below Visible Alpha consensus adjusted EBITA estimates for 2023 and 10% below for 2024. Performance and valuation We lower our target price to SEK 235 (from SEK 265) as a consequence of lower estimates and higher cost of capital. Our target price corresponds to 14x EV/EBITA 2023e. From here, we see 35% upside in the share and maintain our Outperform rating. Sandvik will spin off Alleima in August, which will increase Sandvik''s profitability and improve its cash conversion. We also expect mid-term structural growth in mining, which is Sandvik''s largest end market. Automotive, which is another important end-market for Sandvik, is already at low production levels and a recovery is expected in 2023.
Sandvik will host a CMD on 17 May, with the key topic likely to be strategic priorities going forward. We expect focus will be on growth opportunities in its mining business and how it should manage to offset headwinds from the automotive industry in SMM. SMS should be able to grow despite automotive headwinds Sandvik is likely to deliver a message that the transition to BEV in the automotive industry will be a headwind, but that it is something Sandvik will be able to offset through growth in other areas such as round tools. Automotive accounted for 20% of Sandvik Manufacturing and Machining Solutions'' (SMM) sales in 2021, down from 26% in 2020. Based on our analysis presented in this report, Sandvik Machining Solutions (SMS) would be able to offset auto headwinds if its other segments are able to grow by 1% CAGR in 2022-2035. SMS should be able to grow organically if its non-auto business grows by more than 1% CAGR, which we find quite encouraging. Electrification and automation to drive demand for Sandvik''s mining business Sandvik''s mining businesses should consolidate their strong position in the market and long-term structural growth opportunities, partly driven by electrification and automation. We think Sandvik is gaining market share and that it is in a good position to benefit from structural trends. In our view, Sandvik Mining and Rock Solutions would trade close to Epiroc multiples as a stand-alone company. Three things needed for the stock to work Uncertainty is not a particularly good environment for cyclical stocks such as Sandvik and it has underperformed YTD. We think we need to see three things for the stock to perform well. Firstly, demand from the mining industry needs to remain strong. Secondly, Sandvik''s organic operating leverage needs to improve, especially in SMM and thirdly, leading indicators need to trough. We expect leading indicators to bottom out in H2 and anticipate normalised drop-through rates at the same time....
Sandvik''s Q1 results were better than feared as demand remained strong throughout the quarter. Despite cost inflation, margins were solid (flattered by low overhead costs and FX) as Sandvik has taken mitigating actions. The company expects to fully offset higher cost levels in H2. We have not made any material changes to our estimates and continue to view Sandvik as an attractive investment for the coming twelve months. Demand is holding up well so far Demand is so far holding up in most areas and Sandvik Manufacturing and Machining Solutions'' (SMM) daily order intake pace continued on a positive trajectory into the first two weeks of April. The order intake for Sandvik Mining and Rock Solutions (SMR) exceeded Infront consensus by 14%. The Q1 order level is, however, likely not sustainable. Supply chain constraints continued and book-to-bill was 1.22x in the quarter. Sandvik''s revenue grew organically by 9% but it achieved an organic drop through of only 5%. Sandvik anticipates normalised drop-through rates in H2. We leave our estimates largely unchanged We have updated our estimates for current trading and FX. In total, we increase our adj. EBITA estimate by 1% for 2023. We anticipate continued slowdown in organic order growth rates for SMM and anticipate 4% for this year followed by -2% in 2023, which can be compared to 6% in Q1 2022. Demand for Sandvik''s mining and infrastructure businesses should remain solid. We see ~30% upside potential in the stock over the next twelve months Sandvik shares have been weak YTD and slightly underperformed the sector. With solid results, a relatively attractive valuation, a distribution of SMT and an update on strategic priorities at the CMD in May, we see ~30% upside potential over the next twelve months. We maintain our Outperform rating and a target price of SEK265, which is based on a SOTP-valuation corresponding to 16x EV/EBITA 2023E.
Sandvik released a fairly solid set of numbers. The impact of acquisitions is relatively significant, as expected. SMT, to be distributed to shareholders, is now reported as discontinued operations. The short to mid-term macro outlook is getting more cloudy. We will fine-tune our numbers (exact impact of M&A and lower short-term organic growth).
Russia''s invasion of Ukraine will impact the sector Russia accounts for mid-single digit % of Epiroc''s, Sandvik''s and Weir''s sales, which will likely impact them negatively. The sanctions on Russia are, however, leading to increasing raw material prices and could trigger production increases as well as higher investment spending elsewhere in the world. BNPPE''s mining team does not anticipate any major changes to miners'' near-term capex plans, as they are not particularly flexible, and larger ones require years of exploration/permitting/planning. Positive outlook before the war and that might not change We have screened 11 of the major miners to assess their near-term outlooks and capex plans. At least before the war, the miners had a positive view and a willingness to spend. Capex for our sample is expected to increase by 23% in 2022. We have also updated our trackers and find them reassuring. Mining capex expectations for FY''22 continue to track up with the Street now modelling capex growth of 14% in FY''22 (compared to 3% growth in January ''22). Mining production growth expectations remain positive, supportive of another year of solid aftermarket growth at our companies. Sandvik is likely gaining market share In this report, we also present detailed work on Epiroc''s and Sandvik''s equipment businesses. Sandvik has been able to grow faster than Epiroc in recent years indicating that Sandvik is gaining market share, which does not come as a surprise to us based on its position. Mining equipment stocks are a relatively good place to be In a wider sector piece, we analysed the earnings impact for most companies in our coverage under a set of more bearish macro assumptions. On average, that bearish scenario saw us model earnings cut of 17% across the space while it implied estimate cuts of 7/11/10% for Epiroc, Sandvik and Weir, respectively. The mining equipment stocks have held up well so far, in line with our end market scenario. However,...
SAND WEIR EPIA 0HC0
Strong demand, disappointing margins Orders came in 9% ahead of Infront consensus as both Sandvik Mining and Rock Solutions (SMR) and Sandvik Manufacturing and Machining Solutions (SMM) delivered better-than-expected results. Sandvik remains positive about the demand situation and said that y/y growth rates for SMM were the strongest at the end of the quarter. One datapoint under the spotlight was the 160bp weaker-than-expected adjusted EBIT margin in SMM, explained by poor organic leverage. Sandvik attributed this to some specific items and was clear that a normalised drop-through in SMM should be around 40-50%. We anticipate better delivery in Q1. There is, however, a risk that cost inflation turns into an issue for Sandvik in 2022. Sandvik''s Q4 report included both positives and negatives, but overall we think the results were encouraging and support our Outperform rating. Increased estimates because of base effects and FX We keep our organic sales growth estimates for 2022-2023 relatively unchanged but increase our adjusted EBIT estimates by 5% to reflect stronger than expected 2021 results and favourable currency movements. For 2022, we forecast organic sales growth of 9% plus an additional 10% from MandA/FX, taking total sales growth to c20%. Adjusted EBITA should grow by close to 25%. Of course, it is important for the share price that the order intake continues to grow, which is our base case. We expect mining demand to trend higher, partly driven by the aftermarket business, and SMM should benefit from a recovery in the automotive segment. We maintain Outperform: the situation for 2022 looks promising Sandvik guided for an elevated capex level in 2022, but we think free cash flow (company definition) will exceed c.SEK16bn for the year, which corresponds to a yield of 5%. The SMT spin-off is on track and we believe Sandvik Mining and Rock Solutions'' performance justifies multiples close to Epiroc. We maintain our Outperform rating and...
The group released FY21 results which came out in line with forecasts The Mining and the Metals divisions will benefit from a rather strong order-intake Net debt is still low despite acquisitions The group looks set to reach its mid-term targets We will upgrade our forecasts and valuation after this release
Focus on SMM and Sandvik''s mining and construction business We update our near-term thinking ahead of Sandvik''s Q4 results due on the 20th January. Sandvik''s short cycle business should be negatively impacted by weakness in the automotive segment, but we think it will continue to outperform car production. We forecast organic revenue growth of 8% for Sandvik Manufacturing and Machining Solutions (SMM), and 6% organic order growth. We expect Sandvik''s mining and construction businesses to perform well and expect underlying order intake to be fairly in line with Q3, but large orders of close to SEK 1.5bn will boost order intake in Q4. For the group we forecast strong orders of SEK 28.6bn, corresponding to organic order growth of 19%, sales of SEK 27.0bn and adjusted EBIT of SEK 5.1bn, corresponding to a margin of 18.8%. We lower our earnings estimates slightly for Q4, but keep them unchanged for 2022-2023 We have lowered our group Q4 adjusted EBIT estimate by 2% due to a slightly more cautious stance on the performance in Sandvik Rock Processing Solutions and as we have included the transaction costs and PPA amortisation that Sandvik communicated on the 23rd December. We leave our reported earnings estimates for 2022 broadly unchanged. Improving end markets and SMT spin should be supportive in 2022 For 2022, we expect the strong mining momentum to continue supporting Sandvik Mining and Rock Solutions and Sandvik Rock Processing Solutions. Global car production is expected to grow by 11% in 2022, which should give support to Sandvik Machining Solutions'' cutting tools business even if increased adoption rates of battery electric vehicles (BEV) will offset some of that. Supportive valuation, we maintain our Outperform rating We think the valuation of Sandvik is supportive and the Sandvik Materials Technology spin-off could trigger a re-rating in 2022. We maintain our Outperform rating and increase our target price to SEK 280 as we allow a higher...
Take two companies, X and Y, with similar market cap. Within each there are two almost identical businesses (mining equipment) in terms of size and profitability. But in company Y that''s all you get. In company X you get other businesses generating as much EBIT again. Company X is Sandvik, company Y is Epiroc. So what doesn''t the market like about the ''other businesses''? For example, what happens to Sandvik Machining Solutions in the EV transition? We have done detailed work on this and believe the business can hold top line flat even while losing 40% of its traditional auto related sales, arguing for a narrower market discount. Bottom line: adding all this to a mining tailwind and a 2022 Materials Technology spin-off catalyst we upgrade Sandvik to Outperform.
Group orders beat in Q3, but we found SMM conf call comments on the cautious side Sandvik''s order intake came in 3% above Infront''s consensus primarily driven by strong demand in Sandvik Mining and Rock Solutions. Sandvik has not noticed signs of slowing demand from mining customers and equipment orders are mainly driven by replacement and expansion needs. Greenfield capex remains at relatively low levels. Order intake was in line with consensus for Sandvik Machining and Manufacturing Solutions (SMM), which was viewed as a relief, but we did not find Sandvik''s conference call comments on SMM''s growth encouraging despite daily order volumes improving sequentially. Our understanding is that y/y growth rates were 10% in September and closer to 5% at the start of October, indicating some downside risk to consensus Q4 estimates for SMM. Sales and adjusted EBIT in line with consensus, we make only small changes to our estimates Sales and adjusted EBIT were in line with consensus estimates. Adjusted EBIT was supported by an FX tailwind of SEK 112m versus consensus estimate of SEK -50m. SMM''s adjusted EBIT missed consensus expectations, but that could be explained by MandA costs. In total, we have increased our 2022-2023 adjusted EBIT estimates by 1% and we make only minor changes on a business area level. We lower our organic earnings estimates slightly for Sandvik Machining and Manufacturing Solutions while we have increased them slightly for Sandvik''s mining and construction business. Valuation starts to look attractive, but we maintain Neutral for now Sandvik has underperformed the Sector by ~5 ppts over the past three months. On our estimates, Sandvik trades on ~13.6x EV/EBITA 2022E versus Industrial Machinery names on ~16.7x and the overall Sector on ~16.7x. Sandvik''s valuation starts to look attractive, but the growth deceleration is likely to continue for SMM and we need more clarity on the short cycle development before turning more positive on...
The Q3 21 numbers came in slightly above expectations The order-book rose markedly while logistics issues weighed on revenue growth Margins proved rather resilient, even if a tick lower than in H1 Even if the group does not issue any guidance, we are reasonably comfortable for Q4
2Q orders in-line, +43% as the company ramps-up for a strong 2022, but EBIT margins miss by 50bps (19.1%) or 2.5% due to significant unwind of temporary cost savings. The adj. gross margin increased 490bps but SG&A increased 16%. Temp savings headwinds of SEK765m, combined with increased logistics & ramp-up costs led to the margin disappointment. That said, these fade into 2H and price increases kick-in from June. Reiterate Buy.
Orders ahead, but short-cycle momentum deteriorates in early Q3 Group orders came in 6% ahead; mix was skewed towards SMT and Mining. Machining Solutions orders in first two weeks of July are said to be up 20% YoY; management stated that Machining Solutions sales were up 20% YoY in the first two weeks of July (3% sequential). One might have thought that the easiest comps across Q3 would come in July and that therefore SMS would start the quarter growing faster than this; we suggest that this news is likely to trigger Consensus cuts to H2 SMS H2 forecasts. Group profit -2% light; Mining margins impacted by negative net price/ mix Excluding the negative impact from costs savings (and the reversal of temporary savings) the drop through on the volume growth to adjusted profit looks impressive, at c.64%. Even so, profit came in -2% light of the Street. Margin disappointment at SMRS (Mining) was partly responsible. Management spoke of unfavourable mix, ramp-up costs, logistics challenges and negative net pricing (pricing unable to offset inflationary pressures) as weighing on Mining margins. Shares may struggle until market gains viability on when growth rates will stabilise SMS''s early Q3 order intake is already decelerating and while we suspect that momentum will trough around year end, the news that SMS intake growth is slowing so quickly is unlikely to inspire confidence that this is how things will play out. In addition, the comments around net pricing pressure within SMRS are likely to be taken badly as they drive greater uncertainty around H2 margins. The shares may struggle to outperform until investors gain line of sight as to when, and at what level, growth rates stabilise. Updating estimate; new TP SEK230 We have updated our estimates for recent trading and the latest guidance of interest, taxation and FX. Our price target falls to SEK230. We are Neutral rated.
The performance in H1 21 came out in line with expectations The Q2 21 numbers were very similar to Q1’s at the top line and profit levels The group still mentions some potential bottlenecks in its operations We will not change our numbers much after this release
Profit in line as short-cycle business disappoints at a time of heightened expectations With PMIs at near 40 year highs the market expects short-cycle stocks to deliver significant earnings beats; against this backdrop, Sandvik delivered a somewhat disappointing Q1 print. Orders, sales and adj. operating profit came in +8%/ -2%/ 0% versus Consensus. The orders beat was driven by the Group''s Mining businesses. Mining and Rock Solutions (MRS) orders beat by 14%; Rock Processing Solutions beat by 22%; in addition, Materials Technology (MT) beat by 18%. Unfortunately, Manufacturing and Machining Solutions (MMS), the business which should benefit most from PMI strength, actually missed on orders by -3%. The Group sales miss was driven by MMS (-6% light) and MRS (-5% light). Only MT surprised positively on margins. While forecasting the new mining business splits has injected some uncertainty into estimates for those businesses, the weak sales print explains the margin miss at MMS. Tooling needs Aerospace to recover; SMT spin still on track; did they rule out Renishaw? During the results call the CEO was asked what would need to happen for trading at MMS to recover further. He noted that MMS''s Aerospace activities remain down 40% - given its weighting within the MMS business mix; that alone explains half of the gap to some peers. MMS now appears to be a play on a future Aerospace recovery. In terms of portfolio, management reiterated that the SMT spin-off is still fully expected to happen next year; only a black swan event is seen as derailing the process. Management commentary regarding its MMS Metrology acquisition strategy came close to ruling out a move for larger assets such as the recently-put-up-for-sale Renishaw. The CEO stated that ''We are not first-hand looking to become a broad, generic Metrology company.'' We may be reading too much into that comment - but it sounded to our ear as though he was trying to distance Sandvik from any...
Q1 21 numbers came in line with expectations Margins are on the rise, after the weaker FY20 SMT is still under pressure Some bottlenecks may weigh on growth in the next quarters though No big change to our numbers at first glance, but we remain cautious on organic growth going into Q2/Q3
The 4Q results highlight a reduced cyclicality, delivering record margins during Covid despite margins at SMS (50% of group EBIT) remaining towards cycle lows. Our note puts this performance into historical context showing the increased importance of Mining, where margins are structurally 500bps higher. As the short-cycle recovery gets underway, we argue for a new higher margin corridor and M&A that could deliver a double digit EPS cagr, supporting a further re-rating to quality. Reiterate BUY.
Sandvik AB
A solid Q4 print; but the profit beat came outside of the core Sandvik delivered a solid Q4 print; orders, sales and adj. operating profit came in +2%/ +0%/ +8% vs Consensus. In terms of order intake, the stand out was SMRT, where organic order growth came in at 15% - well ahead of the Street - a figure which will likely trigger upgrades to FY21e Consensus for this division. Group sales have been slow to improve, but the exit rate at SMS was encouraging. SMT sales fell less than the Street expected - a surprise that drove the entire Group profit beat - but SMT orders remained weak, and in combination, weak orders and strong sales imply that SMT is burning through its backlog faster than expected - exposing the division to a risk of bigger declines in sales later this year. The core divisions of SMS and SMRT delivered an in line print. Questions on the shape of the recovery from here; decision on SMT spin set for AGM During the conf call, analysts asked lots of questions about both the outlook for divisional top lines and the outlook for margins. Management highlighted that as sales recover, so temporary cost savings will need to reverse and also mix will limit margin upside; especially at SMRT - where equipment sales will rise faster than higher margin aftermarket activities. There were a couple of questions regarding the implications of SMT''s weak OandG order intake (the Q4 print contained no large OandG orders). Analysts wanted to understand the future margin impact from the loss of sales within this high margin piece. Management attempted to reassure stating that other parts of SMT, such as Kanthal remain profitable; however there was an acknowledgement that 2021 would be a tough year for SMT. While the incremental targeted cost savings for SMT in 21e are considerable, we would worry that Consensus remains potentially too high for this division. This isn''t a big problem at the Group level, but could a lack of profitability result in a delay...
FY20 results were more or less in line with consensus* The Machining Solutions and Material Technology segments are still under pressure The Mining business is doing well, particularly in terms of orders received The balance sheet remains very healthy thus a SEK2.00 extraordinary dividend on top of the SEK4.50 ordinary one We do not expect any major change to our forecasts
The news that Sandvik could consolidate Mining''s crushing and screening markets adds complexity to the investment case. One thing''s for sure... the Rosengren era is well and truly consigned to history. Capital reallocation is now set to dominate the narrative. Expect plenty of questions at next month''s CMD. A Q3 beat, even as SMS misses Sandvik beat Q3 Consensus at the EBITA line but orders and sales were, in our view, a little underwhelming. SMS delivered orders, sales and EBIT misses, however, SMS''s profit miss was offset by an SMRT beat, even as its aftermarket orders were down -9%. SMT delivered a PandL beat, but its orders missed. SMT spin by 2022, ''if circumstances are right'' Within the release, Management committed to the spinout of SMT in 2022, although this will only occur if ''circumstances are right''. Many will want to understand what these ''circumstance'' will need to be, and it''s worth considering that during the conf call, when asked about the outlook for SMT''s Energy (primarily umbilicals) business, the team acknowledged that 2021 will be a very low year. Could it be that the spin is contingent on a nascent recovery for that business by 2022? A new business unit: Sandvik Rock Processing Solutions - why? A new business unit, Sandvik Rock Processing Solutions, is set to be separated out of SMRT. Management denied that this separation was a prelude to a sale of these assets. Rather, it appears as though this business will be given access to capital for consolidation of fragmented crushing and screening markets. Management was asked to comment on the scale of possible deals. The CFO confirmed that acquisitions are expected to be bolt-ons. Updating estimates We have updated our estimates for recent trading and FX. Our price target remains unchanged at SEK180.
Q3 shows an (expected) rebound vs Q2 In particular, Mining&Rock Technology did quite well in the quarter The other divisions are still suffering The recent share price performance leaves little room for a significant upside
2Q sales & EBIT beat by c.15%, with 60% of the beat in SMRT (mining) where margins increased despite a 12% org revenue decline. This divisional strength in mining was not only due to cost savings but a very sharp recovery in the higher margin aftermarket towards the end of the quarter.
Despite a 22% fall in 1Q20 EBITDA, FCF fell just 7% y/y. We expect a much sharper NWC improvement from 2Q to strengthen FCF further. The group reached a SEK1.4bn cash position, with a reduced gearing ratio of just 0.17 (0.21).
In these four short videos, Liberum's Capital Goods team discuss their recent note titled ‘Preparing for the next major rally’.
Sandvik AB Bodycote plc
While Q3 results were in-line the key point for us is the acceleration of de-stocking in SMS due to continued weak demand. This contributed a negative margin impact of 190bps and a very high 85% decremental margin within SMS, partially offset by FX.
Capital Goods Update, Strategy Update, Bodycote, Superdry, Hays, Marston's, Loungers, SMID Market Highlights
SAND BOY SXS HAS MARS ASC COST SDRYN LP0
Capital Goods Update, Strategy Update, Sandvik, Bodycote, Superdry, Segro, Hays, Marston's, Loungers, Market Highlights
SAND SXS BOY SGRO HAS MARS ROG ASML BTRW ASC COST SDRYN LP0
Our ECI analysis of prior inventory cycles (1970-2019) concludes we are approaching a recovery; the sector rallies >50% on 14/14 times after a major inventory correction. This inventory correction is likely to trigger the sharpest EPS cuts of this cycle.
SAND BOY SXS
This report compares Sandvik’s current transformation to Atlas Copco’s post 2007. Atlas re-rated from a deep-cyclical to a premium quality stock. We argue that Sandvik may be next.
Whilst group sales & EBIT beat by 1-2%, we focus on the disappointing leverage of the early cycle SMS division (55% of EBIT). The 3% SMS organic sales growth for 4Q18 slowed from 9% 9M18, despite the 4Q US growth up 9% and a flat EU; both markets have materially deteriorated since 4Q18.