Volvo (Hold, TP: SEK153.00) - Record profit, but clear cyclical risk
We keep our HOLD recommendation but have raised our target price to SEK153 (145) following the strong Q2 report. After several quarters of low operating leverage for the Trucks division, Volvo has managed to solve most of the bottlenecks and also enjoyed a positive mix, resulting in a record-high EBIT margin. However, we believe there is a high risk to 2019 and 2020 estimates relating to a potential trade war, and we could be close to the peak of the cycle for Volvo.Volvo is a manufacturer of trucks, buses, construction equipment and marine and industrial engines. Co.'s activities are organized into six areas: Group Trucks, which sells and markets trucks under Eicher, Mack, Renault Trucks, UD Trucks and Volvo brands; Construction Equipment, which includes equipment for construction and related industries; Buses, which includes buses and bus chassis for city, intercity and coach traffic; Volvo Penta, which manufactures engines and drive systems for boats and commercial craft; Governmental Sales, which manufactures special-purpose vehicles; and Volvo Financial Services, providing customer financing and leasing, dealer financing and fee based products.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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