EUR 850.00 For Business Accounts Only

Morningstar | SCHN Updated Star Rating from 23 Oct 2018

Schindler posted slower revenue growth in the third quarter relative to the first half of 2018, but still tracking within the company's 2018 guidance of 5%-7% growth in local-currency terms. The EBIT margin was stable, which we see as a positive result, given rising raw material prices. We maintain our wide moat rating and CHF 193 fair value estimate. The shares look modestly overvalued.

Third-quarter 5% organic order growth represented a slowing from the 8% posted in the first two quarters. Revenue growth was also slower at 6%, versus 8% in the first half. India, North America, and to some extent Europe all seem to be contributing decent demand for the company's elevators, while some major emerging markets like China and Brazil are posting less volume growth. Overall, we view the demand picture as still solid on an aggregate market level.

The restructuring program successfully expanded the company’s margin in 2017 by around 80 basis points, but this year that progress has been muted by pressure from increasing raw material prices, as well as pricing competition. In China, pricing on large projects remains fierce.

We expect margins to show some modest improvement next year. Schindler began raising prices in the second quarter to help offset the raw material cost increases; however, it is sitting on a backlog with old pricing. As the backlog shifts towards projects with newer pricing, which we expect to see in 2019, the margins should show improvement.