EUR 850.00 For Business Accounts Only

Morningstar | Sandvik Has Early Cycle Exposure to Economic Downturns

Sandvik has two core competencies: developing and manufacturing premium metal-cutting inserts and specialised rock excavation equipment. In the 1940s, Sandvik was one of the first companies in the world to offer cemented carbide cutting tools. This was revolutionary, as it replaced steel, which was less reliable and would wear down quickly. In excavation in the 1960s, Sandvik's drill bits helped to carve out the Mont Blanc tunnel.Today, the company operates three divisions, but not all of these contribute equally to returns and profitability. Contributing nearly 38% of revenue, the machining division consists primarily of cemented carbide inserts but also sells diamond tools. The division remains the jewel in the company's crown, with a leading market share and an operating margin of about 20%, twice the group level.Through its mining and rock division, which contributes 40% of revenue, Sandvik leverages its rock excavation, tunneling, demolition, and drilling expertise. In rock excavation, it shares a dominant position with Epiroc. The mining division covers two phases of mining, excavation and screening. This division is highly cyclical and has the most scope for margin expansion when the cycle turns, and we expect the division to help lift group margins in the medium term. Mining is also the only division where Sandvik has an opportunity to sell recurring service contracts.