LIBERUM: Early Cycle Indicator - Recovery from 2H20
Our ECI rose to 1.05 (0.99), the highest since Nov 2018, driven in particular by a recovering US and Germany. This suggests FY20 org. sales of 0% to -2% for most early cyclicals, in line with consensus, suggesting limited EPS risks.
ABB TFW LUCE RCDO ATCOA BOY G1A KNEBV LR SCHP SIE SMIN WEIR IMI SAND SU SKFB
06 Feb 20
Let’s place to a re-rating
ABB reported Q4 figures broadly in line with expectations. Both orders and revenue remained at a low level, while the EBITA margin improved to 10.1%. Further margin expansion is expected in 2020, especially in H2 with the elimination of the remaining stranded costs and the benefits of ABB’s OS programme. The short-outlook remains soft with weak growth in Europe, US, and also in China due to the coronavirus outbreak. A re-rating of the stock remains likely.
05 Feb 20
LIBERUM: Early Cycle Indicator - Signs of bottoming out
Our ECI was stable at ~1.00 for the 2nd consecutive month after the longest period on record below 1.00, even longer than the 10 months seen during the financial crisis. This stability is due to an inventory correction.
ABB TFW LUCE OSR RCDO BOY G1A KNEBV LR SCHP SIE SMIN WEIR IMI SAND SU SKFB
08 Jan 20
A 2020 re-rating is very likely
Since 2018, we have written many times that the timing was not good and that the business structure’s transformation will have a positive impact, though not before the second part of 2020. And now we are here: we believe a re-rating of ABB in 2020 is very likely. We have updated our model and our recommendation is changed from Reduce with a 5% downside to Add with a 16% upside.
11 Dec 19
Electrification Investor Day : seems to be on the right track
On the back of the Electrification Day, we are much more confident on the integration of GEIS. ABB provided a very high level of detail compared to previous events. The operating margin corridor of 15-19% was reaffirmed for next year. On the other hand, we remain a bit more cautious on the pricing power aspect that should remain weak in the early days at least.
06 Dec 19
The plan is on track, with related-costs under control
ABB reported a good set of Q3 results given the challenging macro environment, especially in profitability terms. ABB’s transformation is starting to show the first benefits, while keeping restructuring costs under control. Overall, we appreciate the good resilience in revenues delivered by the company combined with a robust margin development, which could have been even higher excluding the revaluation of a project in Industrial Automation. The momentum is improving for ABB.
23 Oct 19
Q3 preview: weak momentum
On the back its Q2 release, ABB started to become more cautious on Europe and China; now, the US is also expected to be softer. Except for Motion, all other divisions should remain under pressure in Q3. The ongoing transformation as well as the challenging macro environment are the two main reasons explaining the weak earnings’ momentum. In this note, we explain briefly what we expect for each division in Q3.
09 Oct 19
Sluggish recovery ahead
ABB reported Q2 figures in line with expectations, though we continue to be disappointed by the performance delivered amongst the divisions, especially since ABB is involved in its strategic plan of discontinuing its legacy matrix structure and reshaping its four leading business along customers’ patterns. The transition, as we pointed out previously, will take time for the results to become visible. So, for now, we are just seeing the bad part of the transformation, namely charges and dilution on margins. Come back later.
25 Jul 19
LIBERUM: Early Cycle Indicator - No recovery without de-stocking
Our ECI increased slightly this month to 0.99 (0.97) but still points to minus 2-3% org. sales decline FY19, vs +2% cons. Without a double-digit cut to inventories, there has neither been a multi-year recovery in the sector performance nor revenue growth.
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05 Jun 19
LIBERUM: Early Cycle Indicator - Expected H2 recovery unlikely
Our ECI fell to 0.97 (0.99) for April, suggesting a minus 2-3% sales decline FY19 for the early cyclicals. This removes the prospects for an expected H2 sales recovery.
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07 May 19
Looking for a new CEO
After strong pressure from the activist investor, Ulrich Spiesshofer has finally stepped down and will be replaced temporarily by Peter Voser, the Chairman of the Board. The search for a new CEO has started. The group’s new strategy presented in February remains unchanged. Regarding the Q1 19 results, they were globally in line with expectations, except for EBIT which came in higher than consensus thanks to lower charges.
17 Apr 19
LIBERUM: Early Cycle Indicator - Inventories point to slower orders
Our ECI remained flat at 0.99 for March, which is consistent with a minus 2-3% early cycle organic sales decline; expect company guidance cuts this quarter. UK inventories hit the highest in >30 years, Italian inventories the highest since 1998 (ex GFC), German and US inventories have not remained this high for this long since 1978.
ABB WEIR ALO BOY G1A KNEBV LR PHIA SU SCHP SIE SMIN IMI SAND SKFB
04 Apr 19
LIBERUM: Early Cycle Indicator - Guidance cuts ahead
Our ECI fell to 0.99 (1.00) for both February and on a 3m rolling average; over the last 20 years, each time the ECI has averaged 0.99 or lower for 3 months, early cycle organic sales fall 3.5% over the following 12m, well below current expectations. US orders weakened, reversing the tariff pre-buy strength seen last month; its order/inventory ratio (3m rolling) is 1.04, which has occurred 18x since 1960.
ABB WEIR ALO BOY G1A KNEBV LR PHIA SCHP SIE SMIN IMI SAND SU SKFB
05 Mar 19
Strong Robotics and Motion, but offset by several charges...
Robotics and Motion is definitely the key growth driver for ABB. The company presented today its strategy for 2019 but, no big surprise as ABB had already announced its new structure in December. Although it may not be the right time yet, we confirm our positive opinion for two reasons: i) between $7.6 and $7.8bn of cash to be returned to shareholders on PG’s closing deal and, ii) around $500m per year net savings medium-term.
28 Feb 19
LIBERUM: Morning Comment
PraxisIFM Initiation, Early Cycle Indicator, Frontier Developments, Consumer Staples Best Ideas Video, Infineon Technologies, Carlsberg, AMS, Electrocomponents, Market Highlights
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06 Feb 19
LIBERUM: Early Cycle Indicator - The bull trap
The rise in the ECI this month to 1.00 (0.98) came despite a sharp fall in Europe to a 2012 low. Germany fell to 0.85, seen 3x in 20 years, the ‘01 & ‘08 recessions & the Eurozone debt crisis in 2012.
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06 Feb 19
LIBERUM: VIDEO: Capital Goods Value Trap - 2019 Outlook
In these three short videos Capital Goods analyst, Dan Cunliffe looks over his recent 2019 outlook note for Capital Goods with a focus on why he's cutting estimates for FY19, why trough valuations don't represent trough share prices and are the risks for a 2001 and 2008 type downside increasing?
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25 Jan 19
Focusing on digital industries, at its own pace!
ABB announced two major transformations: i) the divestiture of a large part of its Power and Grids (PG) unit, and ii) the reshaping of its current business structure. On the one hand, the PG sale seems to be a positive move as the unit was a drag on the company with less than an 8% EBIT margin compared to 11.5-13% in the other divisions. On the other, the business structure’s transformation should have a positive impact, though not before 2021. We keep our positive view.
18 Dec 18
Growth is still present but Power Grids drags
The group posted decent Q3 results driven by all divisions (excluding the Power Grids business) and across all geographies. The short-term outlook remains positive in Europe and the US, with growth expected to continue in China, while management remains cautious about geopolitical uncertainties.
26 Oct 18
LIBERUM: Early Cycle Indicator - Downside risks building
Our ECI fell to 1.08 this month, pointing to slowing organic sales growth of just 1% by 1Q19 vs 4% consensus. When our ECI falls from peak to below 1.10, which it has now for three consecutive months, then on 6/7 occasions since 1998 the sector falls 33% on average in 8 months. This month, once again Europe remained weak at a November 2014 low. In contrast, the US, whilst weaker this month, remained elevated. We believe this US strength is set to correct downwards, which would reduce our ECI further, prompting yet further EPS cuts. We believe demand is being overstated here due to double bookings. We reiterate Sell on SKF, Sandvik, Schneider and IMI.
ABB WEIR ALO ATCOA BOY G1A KNEBV LR PHIA SCHP SIE ASSAB IMI SAND SU SKFB
04 Oct 18
LIBERUM: Early Cycle Indicator - US correction ahead?
Since 1998, the US order inventory ratio fell sharply within 3-6 months without exception when the gap between the US and EU ratio is this wide; this is the second consecutive month. A correction in the US ratio towards the low EU ratio would push our ECI below 1.10, and raise the risks of material FY19 EPS cuts. We see increased bottleneck pressures leading to double-booking of orders; supplier delivery times hit a 1979 high this month. On a 6m basis, German orders have fallen the most since 2011, and EU orders continue to weaken. Should the US ratio correct lower, then our global ECI would point to 1% organic sales growth FY19, vs 5% consensus. We remain cautious on the sector.
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04 Jul 18
Strong performance in Q1 18
Order intake increased 16% (adjusted 6%) to US$9.77bn and the book-to-bill ratio reached 1.13x compared to 1.07x in Q1 17 Revenues grew 10% (adjusted 1%) to US$8.63bn and the order backlog increased 2.8% to US$23.7bn EBIT increased 29.9% to US$895m and the EBIT margin improved from 8.8% to 10.4% Net profit after minorities declined 21% to US$572m due to extraordinary income in Q1 17 (sale of the cable Business) Short- and mid-term outlook remain positive
19 Apr 18
LIBERUM: ABB - Recovery in process drives beat
Group orders beat by 6% mainly due to IA and RM which were boosted by a recovery in process demand. Group earnings beat by 5%, or 8% excluding corporate items, driven by A) the short cycle EP division where price recovery boosted operational leverage and B) by the recovery in Process, underpinning a 110bp margin expansion at RM vs 50bps expected. RM was boosted as usual by robotics, but the main change was the the Motion unit as the 3 year Oil & Gas related headwind to sales and margin is now fading. This impact should push RM FY19 margins >17% vs 15.8% consensus.
19 Apr 18
In line with our expectations!
Revenues increased 1.4% to US$34.3bn and EBITDA 10% to US$4.5bn EBIT jumped 15% to US$3.43bn also due to higher operating income The EBIT margin increased from 8.8% to 10.0% and the EBITA margin according to the company’s calculation declined from 12.4% to 12% Net income after minorities rose 16.5% to US$2.2bn Dividend per share increased from CHF0.76 to CHF0.78 Outlook for 2018 improved but with no further details
08 Feb 18
Solid performance in Q3 17
Revenues in Q3 17 grew 5.7% to US$8.72bn and the order intake increased 8.3% to US$8.16bn. The order intake grew 8.3% to US$8.16bn and the book-to-bill ratio reached 0.94x compared to 0.91x in Q3 17. The volume of large orders declined 4% whereas base orders increased 10%. The order backlog declined 4.6% to US$23.4bn. The gross margin increased from 29.8% to 30.6%. EBIT improved 3.4% to US$908m and the EBIT margin declined from 10.6% to 10.4%. Net income remained nearly unchanged at US$571m. In the first nine months, revenues increased marginally by 0.8% to US$25.03bn and the gross margin improved from 29.1% to 30.5%. EBIT, however, jumped 22.2% to US$2.8bn and the EBIT margin increased from 9.3% to 11.3%, attributable to a higher operating income. Net income after minorities increased 23.5% to US$1.82bn.
26 Oct 17
Acquisition of GE Industrial Solutions
ABB acquired GE Industrial Solutions for US$2.6bn. GE Industrial Solutions, with headquarters in Atlanta, Georgia, generated total revenues of US$2.7bn (of which 60% in North America) in 2016 with 13,500 employees. The company is active with 29 manufacturing facilities in over 100 countries. In 2016, the operating EBITDA margin reached 8% and the EBITA margin 6%. GE Industrial Solutions, a subsidiary of GE, offers electrical products, solutions and services for commercial, residential and industrial customers. The product offering ranges from circuit breakers, low-and-medium voltage systems (engineered solutions) to switchboards, switches and load centres (configured solutions) to telecom power supply (embedded solutions). ABB’s management is confident it can create value despite the present weakness of GE Industrial Solutions, e.g. ageing portfolio, declining US market share and below peers’ margin. ABB’s management is confident of restructuring the business and successfully integrate it into its own “Electrification Products” division. This business division generated total revenues of US$9.9bn with over 42,500 employees in more than 100 manufacturing sites. In respect to market share, ABB is strengthening its global number two market position. Schneider Electric is still leading the market followed by Eaton (number 3), Siemens and Legrand. The total electrification market size is estimated to be around US$32bn with annual growth rates of 2%. According to ABB’s management, there is significant value creation potential. Annual cost synergies are expected to reach US$200m in year five and cumulative one-time costs of US$400m.
09 Oct 17
Operating performance improved further
In Q2 17, revenues declined 2.6% to US$8.45bn. Service revenues declined by 2.2% to US$1.47bn and product revenues by 2.6% to US$6.98bn. Order intake declined 9.2% to US$8.34bn and the order backlog dropped 11.1% to US$23.55bn. Total base orders were up 3% (below US$15m). The book-to-bill ratio improved from 0.96x to 0.99x. The product gross margin improved from 25.3% to 28.7% and the gross service margin from 39.9% to 40.6%. EBITDA, however, jumped 22.2% to US$1.14bn and the EBITDA margin increased from 10.8% to 13.5%. EBIT also jumped by 36.6% to US$884m. The EBIT margin increased from 7.5% to 10.5%. Net income jumped 29% to US$525m.
21 Jul 17
Real earnings are still under pressure
ABB reported its first quarter results. Revenues declined marginally by 0.6% to US$7.85bn and the order intake dropped 9.2% to US$8.4bn. The book-to-bill ratio declined from 1.17x to 1.04x and the base orders grew 2%. The order backlog declined 11.1% to US$23.1bn. Real EBIT excluding the net gain of US$334m due to the sale of the cable business declined 11.2% to US$696m. The EBIT margin declined from 9.9% to 8.9%. Operational EBITA according to the company declined marginally from US$951m to US$943m. The operational EBITA margin remained stable at 12.1%.
20 Apr 17
Voting disaster at the AGM
According to ABB’s latest press release, all shareholders approved all proposals at the Annual General Meeting. At first glance this statement is correct, but it is definitely misleading. A closer view reveals the real disaster for the board of directors and management. Around 42.14% of the shareholders were unhappy with the discharge of duties of the board of directors and the persons entrusted with management (management board). Around 40.88% of the shareholders were against the consultative vote on the 2016 compensation report and 37.74% against the binding votes on the maximum aggregate amount of compensation of the executive committee for the financial year 2018. All other resolutions of the agenda were passed with over 98% agreement.
18 Apr 17
Small but beautiful and expensive
ABB has acquired Bernecker + Rainer Industrie Elektronik. The company has its headquarters in Austria and employs around 3,000 people (of which 500 application engineers). In the financial year 2015/16, B+R generated total revenues of US$600m (€561m) and an EBIT of US$75m (€71m). The EBIT margin reached 12.5%. The company offers hardware and software solutions for machine and factory automation and is active in over 70 countries. According to ABB, the company is in the top 5 in PLC (programmable logic controller), IPC (industrial PC) and servo motion (drives and motors). B+R has around 4,000 customers (machine builders) with over 3m automated machines installed in 27,000 plants.
04 Apr 17
Growth momentum still not visible
The company reported final 2016 results. In the fourth quarter ending in December, revenues declined 2.7% to US$8.99bn. The gross margin, however, improved from 25.9% to 28% mainly driven by higher product and service gross margins. EBIT jumped 109.2% to US$725.8m. The EBIT margin increased from 3.8% to 8.1% due to lower restructuring charges booked in Q4 15. Order intake remained stable at US$8.28bn. In the financial year 2016, revenues declined 4.7% to US$33.8bn. The EBIT margin improved from 8.6% to 9% and net income rose 1.6% to US$1.96bn. Management proposed a dividend increase of CHF0.02 from CHF0.74 to CHF076 per share. Order intake declined 8.4% to US$33.4bn and the order backlog reached US$22.98bn.
08 Feb 17
Solid operating performance but declining orders
In Q3 16, revenues declined 3.1% to US$8.26bn (our estimate: US$8bn). Order intake dropped 14.1% to US$7.53bn and the order backlog declined 3.2% to US$24.55bn. The gross margin increased from 29.6% to 29.8% and the EBIT margin from 10.4% to 10.6%. Total EBIT remained nearly stable at around US$878m (our estimate: US$680m). Net profit declined 1.6% to US$568m. Adjusted EBITA declined 3.2% to US$1.046bn which was marginally above the consensus estimates of around US$1.4bn. The operating performance of the company was in line with market expectations but exceeded our estimates. The performance was mainly driven by the Power Grids division. Real EBIT increased 39.6% to US$222m and the EBIT margin improved from 5.7% to 8.4%. The EBIT margin of the Electrifications division increased from 16.6% to 16.9%, Discrete Automation & Motion from 11.9% to 12.5% and Process Automation from 9.6% to 11.2%.
27 Oct 16
Return on equity reduced by law
In Germany, the regulatory environment for the grid network has changed. The German Network Agency (Bundesnetzagentur) has changed the imputed return on equity which will apply for the next five years. The current regulatory periods for gas and electricity will expire in 2017 (gas) and 2018 (electricity). The new regulations for gas will apply as of January 2018 and for electricity 2019. The new return on equity for new assets will be reduced from 9.05% to 6.91% and for so-called old assets (activation prior January 2006) will decline from 7.14% to 5.12%. In each case without inflation and before corporate tax and after trade tax. According to estimates the lowered return on equity (equity ratio 40% max.) will reduce the yield by around €650m per year.
13 Oct 16
Business as usual!
The capital markets day ended as expected. The Power Grids division will not be separated from the company. The shareholder Cevian with a stake of 6.2% in the company had asked for a spin-off, IPO or joint venture. ABB’s response was quite obvious. Management will streamline the group and has initiated a share buy-back programme. Management has also started partnerships with Flour (transformation station) and the Norwegian service and maintenance company Aibel for offshore wind energy. In addition, a new EBITA margin corridor for the Power Grids division was announced. In 2018, the EBITA margin should range between 10% and 14% compared to 8-12% previously. In addition, management added some buzzwords such as relentless execution, streamlining the portfolio and digitalisation.
05 Oct 16
The communication engine has started!
Just after the supervisory board meeting another argument has arisen about not selling the Power Grids division. The Chinese company State Grid Corporation is interested in ABB’s leading-edge technology HVDC (high voltage direct current). State Grid Corporation is ABB’s largest customer but might also become its the largest competitor. The company controls more than 80% of the Chinese grid. According to recent rumours, State Grid is willing to pay up to US$20bn, which is in line with our net asset valuation.
22 Sep 16
Power Grids to remain part of the group!
ABB has sold its high-voltage cable business to the Danish company NKT Cables. The total enterprise value reached €836m, or US$934m. The high-voltage business was part of the Power Grids division and generated total revenues of around US$524m with around 900 employees. The business unit has manufacturing and R&D facilities for high-voltage submarine and underground cables in Karlskrona, Sweden. The deal will be closed in the first quarter of 2017.
21 Sep 16
Living in a different world!
The company reported disappointing second quarter results. Order intake declined 7.6% to US$8.3bn and revenues dropped 5.3% to US$8.7bn. Management experienced solid progress in profitability. Adjusted EBITA increased 4.5% to US$1.1bn and the EBITA margin increased from 11.5% to 12.7%. Real EBIT, however, plummeted 32.7% to US$647m and the EBIT margin declined from 10.5% to 7.5%. The ongoing cost-savings programme resulted in restructuring charges of US$367m. To make the unreal world perfect, management also reported operational EPS numbers which increased 16% from US$0.30 to US$0.35. Real EPS numbers dropped 28% from US$0.26 to US$0.19. Net income collapsed by 30.8% to US$407m.
21 Jul 16
Solid performance in a weak environment
The company reported first quarter results. Order intake dropped 11% to US$9.25bn and the order backlog increased 2% to US$25.98bn. Revenues declined 7.6% to US$7.9bn but the gross margin increased from 29.2% to 29.8%. Product revenues declined 8.8% to US$6.5bn and service revenues only 1.8% to US$1.4bn. The EBIT margin declined from 10.1% to 9.9%. EBIT of the Electrification division dropped 7.1%, Discrete Automation & Motion -20% and Process Automation -17.1%. EBIT of the Power Grid division, however, jumped 41.4% to €181m.
20 Apr 16
Management lost traction
The company reported final results ending in December. In Q4`15, revenues declined 11% to US$9.2bn and orders 12% to US$8.3bn. ABB experienced strong order decline in China (-21%), Norway (-29%) and the USA (-16%). Real EBIT collapsed 67% to US$347m and the EBIT margin declined from 10.1% to 3.8%. Even based on adjusted operational EBITA, results declined by 6% (at cc. +1%) from US$1.15bn to US$1.1bn. Adjusted operational EBITA includes numerous cost items mainly acquisition related amortization and restructuring charges which were added back. In the financial year 2015 revenues declined 11% to US$35.48bn (at cc.0%) and order intake -12% to US$36.4bn (at cc.-1%). We estimated a decline of 6.2% to US$37.3bn. Order backlog declined 3% to US$24.12bn. EBIT plummeted 27% to US$3.05bn (estimate -14.6% to US$3.6bn). Management is proposing a dividend increase of CHF0.02 from CHF0.72 to CHF0.74 per share. If approved at the AGM on 21 April, the dividend will be paid in a tax-efficient way. The nominal value of the ABB share will be reduced from CHF0.86 to CHF0.12.
03 Feb 16
US$ appreciation drove the performance
In Q3 15, order intake dropped 22% (at cc -12%) to US$8.77bn. Revenues dropped 13% to US$8.52bn and EBIT declined 27.8% to US$992m. The EBIT margin reached 10.4% compared to 12.4% in Q3 14. The adjusted EBITA margin (which includes restructuring charges, acquisition-related costs, gains and losses from the sale of the business and fx items) increased from 12% to 12.5% which was within the long-term EBITA margin target hovering between 11% and 16%. Net profit declined 21% from US$734m to US$577m but exceeded market estimates of US$551m.
21 Oct 15
The company reported Q2 15 results. Revenues declined 10% to US$9.17bn (at cc +3%). Order intake dropped 14.9% (at cc -4%) to US$8.99bn and the order backlog -3.9% to US$26.03bn. The gross margin improved from 28.3% to 29.7%, mainly driven by the service business. The service gross margin increased from 36.2% to 39.5%. The product gross margin also improved from 26.6% to 27.7%. EBIT declined 8.7% to US$961m. The EBIT margin however improved from 10.3% to 10.5%. Net profit declined 7.5% to US$588m.
23 Jul 15