In it together? Ownership alignment update

Management ownership has increased. Great alignment at ABB, good at Volvo, Alfa, Hexagon, and Metso. Low direct ownership at Epiroc and (despite some improvement) SKF.

The power of M&A compounding

Hexpol (Hold, TP: SEK132.00) - Minor sequential changes expected

Overall we expect minor sequential changes in Q2, and forecast sales of SE5,447m and adj. EBIT of SEK921m, both c3% below consensus. We have lowered our 2024–2026e adj. EBIT by c1% on average, reflecting updated FX. We reiterate our HOLD, but have lowered our target price to SEK132 (140) on updated valuation and estimates.

The Capital Goods Data Miner - June 2024

Our key long ideas are: Alfa Laval, Hexagon, Metso, Sandvik, Volvo. We are cautious on: Autoliv, Nibe, Wärtsilä

The Capital Goods Data Miner - May 2024

Our key long ideas are: Alfa Laval, Hexagon, Metso, Sandvik, Volvo. We are cautious on: Autoliv, Nibe, Wärtsilä

Q1 trends, estimates, valuation and top picks

The Q1 reports proved that sector companies could maintain record-high margins despite volume declines.

Hexpol (Hold, TP: SEK140.00) - Smooth operator

Despite weaker organic growth than we had expected, Q1 had strong cost control and solid margins. We have raised our 2024–2026e adj. EBIT by c1% on average, having become more positive on margins. We reiterate our HOLD and SEK140 target price, continuing to see risk/reward as fairly balanced.

Hexpol (Hold, TP: SEK140.00) - Still-balanced risk/reward

We estimate Q1 sales of SEK5,483m and adj. EBIT of SEK932m, in line with consensus. We have increased our 2024–2026e adj. EBIT by c1% on average, mainly reflecting updated FX. We reiterate our HOLD, but have raised our target price to SEK140 (130) on updated valuation and estimates.

Hexpol (Hold, TP: SEK130.00) - Minor estimate changes post-Q4

Hexpol’s Q4 results were on the light side versus our estimates and consensus (c2% miss on adj. EBIT), with a seemingly largely unchanged demand situation QOQ. The raised dividend policy (from a c25–50% to a 40–60% pay-out ratio) was already reflected in our model, while the extraordinary dividend was more of a surprise (although we had flagged the possibility). We have lowered our 2024–2025e adj. EBIT by c1% on average, and reiterate our HOLD and SEK130 target price. We see limited upside poten...

Hexpol (Hold, TP: SEK130.00) - Closing in on its fair value

Ahead of the Q4 results (due on 26 January), we have lowered our 2023–2025e adj. EBIT by 3% on average after factoring in updated FX and recent M&A. We expect Q4 sales of SEK5,095m (c-10% organic growth YOY) and adj. EBIT of SEK855m, both just below consensus. We have raised our target price to SEK130 (125) on recent peer multiples expansion; however, with limited potential upside following the c30% rally in the shares since early October, we have downgraded Hexpol to HOLD (BUY).

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Hexpol (Buy, TP: SEK125.00) - Cash flow generator at a discount

Q3 was in line overall, with a solid adj. EBIT margin and strong cash flow generation. We have made limited estimate changes, and believe the negative sales price effect is fading (weighing less on organic growth). Hexpol said it is still looking for M&A opportunities; we believe it has scope for M&A, dividends and buybacks. We reiterate our BUY and SEK125, and continue to see an attractive valuation.

Hexpol (Buy, TP: SEK125.00) - Potential for share buybacks

Ahead of the Q3 results (due at 13:00 CET on 27 October), we have upgraded Hexpol to BUY (HOLD) and raised our target price to SEK125 (122), as we see an attractive entry point following the recent weak share price performance, but stable LVP production outlook, continued FX tailwinds, and recent oil price movements, which support price hikes for Hexpol’s products, in our view. We see a case for the board initiating buybacks given Hexpol’s balance sheet strength and strong cash flow generation; ...

Northern Lights

Hexpol (Hold, TP: SEK122.00) - Better entry points ahead

Q2 was overall in line with our expectations, hence we have made only moderate underlying estimate changes, while our updated FX has led us to cut our adj. EBIT by on average c3% in 2023–2025e. We see the valuation as close to fair, while end-markets (ex. auto) are generally becoming tougher, with few likely positive catalysts ahead. We reiterate our HOLD but have cut our target price to SEK122 (128).

Hexpol (Hold, TP: SEK128.00) - Few catalysts on the horizon

We expect Q2 sales of SEK5,802m, with c-5% organic growth YOY and adj. EBIT of SEK909m, roughly in line with consensus. We still see limited upside potential, with lacklustre 2023-25e EPS growth, and believe the valuation (relative and absolute) is largely fair. We have made limited estimate changes and reiterate our HOLD and SEK128 target price.

Northern Lights

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

Northern Lights

Hexpol (Hold, TP: SEK128.00) - Still trading close to fair value

Q1 sales were c3% below our forecast and consensus, while adj. EBIT was c2% above, with a solid margin. We have lowered our 2023–2025e adj. EBIT by c1%, and our target price to SEK128 (130). We reiterate our HOLD, as we view the valuation as fair (12-month forward EV/EBIT of c12.5x, in line with its historical average).