Industrials
Following publication of its FY24 annual report, Iron Blue increases their ABB score +2pts to 29/60 (newly top decile / fertile grounds for shorting). Headline earnings were struck after higher Y/Y stripped out costs / losses and increased cost capitalisations whilst they also included seemingly greater one-off benefits related to derivatives and self-insurance. This could imply a tough comp effect for FY25 earnings delivery. Risks also seem to have increased. KPMG added “valuation of goodwill for the Machine Automation reporting unit” as a new critical audit matter, implying heightened risk of a future impairment. Management added “intensified competition” as a new risk. “Legal and regulatory changes” was also newly cited with a focus on potential restrictions from trade sanctions. Finally, whistleblower cases increased +18% Y/Y.
Industrials
Although investors have favoured equipment stocks amid a perceived Industrial & Infrastructure Super Cycle in the US, recent 3Q23 earnings results from companies such as ABB and Rexel suggest otherwise as trends are slowing rapidly, with both orders and construction activity worsening as interest rates rise. Investors do not properly appreciate that renters of AHT’s equipment are primarily small businesses that require financing and working capital from small / regional banks. These loans are typically based on adjustable rates and recent NFIB surveys corroborate that credit is drying up. Ultimately, AHT’s margins will be pressured as utilisation rates suffer. TP £30.00 (40% downside).
Asia’s Covid Woes & Global Supply Chain Implications
Autos / Industrials
Report by
Silk Road Research
More Asian countries are currently under some form of lockdown than at any point in the past year. This includes Taiwan, Thailand and Vietnam - all key source countries for global supply chains. SRR’s contacts in the Automotive and Automation industries now expect supply chain bottlenecks to persist for the remainder of the year with Logistics contacts expecting air and ocean freight to remain tight through to June 2022! SRR’s top picks for China exposure in H2 include Otis, ABB, Schneider Electric, Siemens, Yaskawa, Fanuc, Aptiv, Nio and Volkswagen.
