Veoneer (Hold, TP: SEK320.00) - Trading 7% below Qualcomm’s bid

Ahead of Veoneer’s Q3 results, we have cut our 2021e sales and EBIT by 9% and 17%, respectively, to reflect recent IHS estimate reductions owing to OEM production cuts due to supply-chain issues, while our 2022–2023e sales are broadly unchanged. Thus, we are 9% below Infront consensus on 2021e sales, and expect Veoneer to lower its 2021 guidance with its Q3 report. That said, we still believe Qualcomm’s non-binding cash offer to acquire Veoneer at USD37/share will become a formal bid before Veon...

Veoneer (Hold, TP: SEK320.00) - Qualcomm has Arrived

On 5 August, Qualcomm made an all-cash offer to acquire Veoneer at USD37/share. Although we believed Qualcomm would have made a move earlier if it was interested in Veoneer, it seems the most logical suitor to compete with Magna’s previous bid of USD31.25/share to secure access to Arriver. We see it as unlikely at this point that Magna or other suitors would present competing bids, but do not rule out a transaction where Qualcomm acquires the Arriver programme and a separate entity acquires the ...

Veoneer (Hold, TP: SEK270.00) - Magna bid attractive enough

Following Magna’s offer, corresponding to a USD3.8bn equity value for Veoneer, we have downgraded to HOLD (BUY) with a SEK270 (300) target price to reflect that we believe the deal terms are attractive enough and see a high likelihood of transaction approval. We also see logic for the approach, although we are at an early inflection point of the L2+ ADAS mass rollout phase, where we believe Veoneer is in a sweet spot for 20%+ medium-term organic growth.

Veoneer Minor model adjustments

We expect automotive industry headwinds (chip shortages and supply-chain disruption) to remain a drag on the gross incremental margin ahead of the Q2 results (due on 23 July, time tba). Although we have lowered our 2021 gross profit forecast by 5%, our 2021–2023e sales are unchanged. We do not consider these changes to be material and have not changed our BUY recommendation. We reiterate our SEK300 target price. Accelerating revenue growth and improving operational leverage in Q3–Q4e, as higher ...

Veoneer (Buy, TP: SEK300.00) - Back-end-loaded 2021e

A gross incremental margin of 5% and a back-end-loaded 2021 growth outlook for orders and sales were the key concerns in Veoneer’s Q1 results. Nevertheless, we reiterate our BUY and SEK300 target price, as our 2021–2023 sales estimates are broadly unchanged. We expect a 20%+ medium-term organic growth phase, as we are in the early stages of the L2+ ADAS industry mass rollout, which could spark a shift in perception and, potentially, multiples expansion.

Go West…

Sector profitability is set to be strong in 2021 but mounting supply chain constraints are an increasing concern. We favour US exposure (Assa Abloy, Hexpol, Dometic), mining equipment (Epiroc, Metso Outotec) and construction. We recently upgraded Alfa Laval and Hexpol (from HOLD to BUY) and downgraded Volvo and ABB (from BUY to HOLD).

Veoneer (Buy, TP: SEK300.00) - Time to harvest in 2021e

We expect warnings of chip shortages to continue to dampen auto-sector sentiment short-term, but Veoneer appears well positioned to outperform LVP as soon as Q1e, and we forecast organic growth to accelerate to 29% YOY in 2021e with key launches on track. We still like Veoneer’s large order backlog, set to drive 20%+ sales growth medium-term, a 2021e rebound in LVP, and cost discipline leading to EBIT and FCF breakeven in 2023e. We expect a continued re-rating as investors gain confidence in Veo...

Northern Lights

Veoneer (Buy, TP: SEK300.00) - Inflection point Arriving

Veoneer should benefit short-term from the 2021 LVP rebound with key launches on track while the long-term narrative becomes more appealing with its Qualcomm partnership. We have raised our target price to SEK300 (245) and reiterate our BUY: we expect a 20%+ medium-term organic growth phase, as we are in the early stages of the L2+ ADAS industry mass rollout, which we believe could spark a shift in perception and potentially multiples expansion for the stock.

Northern Lights

Veoneer (Buy, TP: SEK245.00) - Still flying under the radar

Veoneer is set to report its first quarterly results with organic sales growth (we forecast 4% YOY in Q4). We see a particularly attractive entry point ahead of what we expect to be a 20%+ medium-term growth phase, as we are in the early stages of the L2+ ADAS industry mass rollout, which we believe could spark a shift in perception and potentially multiples expansion for Veoneer. We have raised our target price to SEK245 (235) and reiterate our BUY.

Green is good

Average alignment with the EU Taxonomy that defines ‘sustainable activities’ could be as low as 11% for the sector. Hexagon, ABB and Alfa Laval screen best, while ‘strong’ ESG cases like Nibe and Beijer Ref’s alignments are surprisingly low. We also see a mismatch between companies’ taxonomy alignment and ESG funds’ positioning, which could have a major impact on flows in certain stocks. For 2021, our top sector picks are Autoliv, Dometic, Epiroc, Metso Outotec, Hexagon and SKF, as we favour aut...

Northern Lights

Veoneer (Buy, TP: SEK235.00) - Light at the end of the tunnel

The Q3 report showcased further operational improvements despite industry headwinds. We continue to like the company’s solid cost optimisation, product portfolio efficiencies, disposal of non-core business, and recent validation of its ADAS offering, and consider this a particularly attractive entry point ahead of what we expect to be a 20%+ medium-term growth phase. We believe this should mark a change in sentiment in the equity story. We reiterate our BUY and have raised our target price to SE...

The new normal

Nordic Capital Goods (, ) - (69 pages)

Veoneer Minor model adjustments

Ahead of Veoneer’s Q3 results (due on 23 October), we have raised our 2020–2022e sales by 1% to reflect stabilising LVP production. We do not consider these changes to be material, and we have not changed our BUY recommendation. We have, however, raised our target price to SEK160 (155) and still identify a significant re-rating opportunity for 2021e as key model launches ramp up to reignite the organic growth story.

Northern Lights

Veoneer (Buy, TP: SEK155.00) - Waiting for focus to shift to 2021e

Despite a 53% organic sales decline YOY in Q2, we appreciate Veoneer’s actions to preserve its USD851m cash position ahead of its significant launch period going into 2021e. We reiterate our BUY and SEK155 target price as we like the 28% sales CAGR outlook for 2020–2022e (primarily due to 50%+ higher CPV YOY in upcoming model launches), lower financial risk from improved FCF control, and identify a potential re-rating opportunity for 2021e, although LVP concerns remain.

Northern Lights

Veoneer (Buy, TP: SEK155.00) - Uphill slog approaching its end

Ahead of Veoneer’s Q2 results, we have left our 2020–2022 sales forecasts flat on aggregate, although tough global LVP headwinds (-48% in Q2e) suggest that significant launch activity from Q4 could lead to gradual outperformance. We reiterate our BUY and SEK155 target price as we appreciate the 28% sales CAGR outlook for 2020–2022e (primarily due to 54% higher CPV YOY in upcoming model launches), lower financial risk from improved FCF control, and see a material re-rating opportunity for 2...