Analyst Note| Matthew Donen, CFA |
Narrow-moat Sandvik managed to report decent second-quarter results despite growing concerns about an impeding recession from investors and the subsequent impact on the short-cycle nature of Sandvik’s business. Sandvik’s decision to pause and subsequently wind down its business in Russia had a significant impact on its second-quarter results. However, underlying demand remains healthy. Organic order intake and revenue grew by 4% and 6%, respectively but both order intake and revenues grew organically by 10% if we exclude Russia. Second-quarter revenue growth of 25% includes a 19% contribution from acquisitions. Adjusted operating profit growth of 23% grew at a slower rate than revenue due to a combination of cost inflation and a shift to more expensive air freight in order to service customers, as well as the impact of lower-margin acquisitions. Performance is broadly tracking in line with our expectations and thus we reiterate our SEK 193 fair value estimate and view shares as fairly valued.