EUR 850.00 For Business Accounts Only

Morningstar | SCHN Updated Forecasts and Estimates from 17 Apr 2019

Schindler reported full-year results slightly better than expected on our figures and consensus in terms of growth, while the EBIT margin was in line with expectations. Revenue grew 7% organically and the EBIT margin was stable, in spite of material cost inflation. We are maintaining our wide moat rating, CHF 193 fair value estimate, and believe the shares are fairly valued.

Schindler is the last of the four large elevator suppliers to report results, and thus its outlook for 2019 global demand did not contain any surprises. Schindler and its peers are taking a more cautious approach to 2019, given signs of a natural turn in the construction cycle, combined with government actions dampening investment. On this last point, Schindler, like Kone, was more cautious on the 2019 outlook for the Chinese elevator market (the largest globally) due to government measures to curb some of the more speculative growth as well the ongoing uncertainty from the  China/U.S. trade talks.

While we see both stocks as fairly valued, Schindler has two advantages over Kone from an investment standpoint currently. First, it has lower exposure to China and therefore a slowdown will not effect it as much. Its 2019 revenue guidance reflects less uncertainty through a tighter growth range, 4% to 6%, a 200-basis-point spread versus the 2% to 7% 500-basis-point spread for Kone. Second, Schindler's margin improvement is helped from the margins coming from a lower base relative to Kone's, as Schindler was behind the curve in modular production practices. It has since been righting that ship and the margin improvements are just starting to flow through and should continue in the next couple of years.