Looking Past One-Off Impact, Siemens Fiscal Q2 Indicates Market Share Gain and Good Cash Management

We believe the selloff of 6% (at the time of writing) for Siemens shares after reported fiscal second-quarter results presents a buying opportunity. The selloff likely came from concerns over the reported 200-basis-point year-over-year decline in profit margin to 18% for the narrow-moat firm's digital industries segment (automation solutions). However, the decline was due to a mix of one-off effects: 50 basis points related to exiting Russia, 30 basis points from bonus accrual to salespeople exceeding order targets and 100 basis points for the timing differences in automation software for customers transitioning from premise to cloud-based or SAAS contracts. SAAS transition is in an early phase and will be multiyear but ultimately benefits the firm's cash flow profile by increasing the portion of recurring revenue. Siemens also announced it would exit Russia (after 170 years in the market), leading to a 40-basis-point group-level profit margin and 100-basis-point mobility segment-level profit margin impact. We maintain our EUR 145 fair value estimate for Siemens.