Industrials

Report by Willis Welby

Willis Welby sees a “second transformation” of Chinese manufacturing as an underappreciated threat to European industrials. China’s first advantage came from cheap labour after joining the WTO; the next could come from widespread deployment of AI and robotics, materially improving factory and supply-chain efficiency while retaining a lower-cost workforce. The risk extends beyond Chinese exports into Europe: more efficient domestic competitors could also displace European companies in China and take share from them elsewhere globally. Willis Welby therefore highlights European manufacturers with significant Asian exposure and relatively demanding valuations, including Sandvik, Alfa Laval, Atlas Copco, Epiroc, Hexagon, EMS-Chemie and DSM-Firmenich. All currently have positive earnings momentum, but their valuations leave them vulnerable if Chinese competitive pressure becomes a more prominent investor concern.

Technology

Report by Smart Insider

Smart Insider flags a number of insider buys at Hexagon, Sage and ATOSS following recent share price weakness, ranking all 3 stocks +1 (highest rating). At HEXA, the new CEO, Chief Strategy Officer and Vice Chair made their first purchases, buying a combined €3.4m of stock, shortly after results and the announced spin-off of Octave Intelligence. At SGE, 2 long-serving non-execs bought stock, including one director tripling his holding in a rare purchase and at a higher price than his last buy 5 years ago. At AOF, the CEO invested €11.6m (adding 4% to his stake) and the long-tenured CFO made his first-ever purchase - a notable shift from a series of smaller sales.

Technology

Report by Iron Blue Financials

Iron Blue initiates coverage on HEXAB with a score of 34/60, which is top decile (fertile ground for shorting). Key areas of accounting focus include 1) Revenue recognition. 2) Stripped out one-off costs, share payments and PPA amortisation. 3) R&D capitalisations and contingent consideration releases. 4) Acquisition disclosures and strategy of buying HEXAB distributors. Regarding governance, they note the auditor lead partner’s relationship with HEXAB’s largest shareholder network, a non-independent board and committees, 2 classes of shares, CEO / CFO internal succession, Greenbridge relationship and unclear CEO annual bonus payout metrics. Iron Blue also flags a fairly large number of areas where disclosure could be improved.