EUR 850.00 For Business Accounts Only

Morningstar | Atlas Copco's Well-Oiled Compressor Business Is Solidly Positioned for Long-Term Demand

The core of Atlas Copco's business is its air compression product portfolio, which also serves as a calling card to introduce customers to other products in Atlas Copco's portfolio. Air compressors are used in the majority of industries, from automotive assembly to food processing, and Atlas Copco is the market leader with a market share of about 25% in air compressors, about 2.5 times as large as its closest competitor in air compression, Ingersoll Rand. Atlas Copco uses this near ubiquity to its advantage by acquiring other equipment and tool portfolios that it can sell to its air compressor base. Higher-volume production capabilities and an installed distribution channel allow the company to globalise the products of its acquired businesses at a lower cost than those operations could achieve by themselves. One third of all cars globally are made using Atlas Copco tools.The compressor and vacuum businesses form the core Atlas Copco's business following its 2018 spin-off of Epiroc. In our view, the vacuum business has greater longer-term promise and overlap with the company’s core (and moaty) compressor business than the mining and construction businesses do. We see an opportunity for Atlas Copco to reinforce the switching costs in the vacuum business by leveraging its service network in the core compressor business. The vacuum business, which began with acquisition of the Edwards Group in 2014, derives around 20% of its revenue from service, well below the roughly 37% in the compressor division. Service will likely always be a lower portion of vacuum because of equipment differences, but it can improve from its current levels. Before it was acquired by Atlas, Edwards did not have as wide a service network as its customer base might have demanded. As vacuum pump customers are frequently also compressor customers, Edwards can now use Atlas’ logistics and large technician network to win contracts from third-party providers that are currently maintaining its vacuum equipment. We think the spin-off will help to accelerate these wins.