Analyst Note| Matthew Donen, CFA |
Narrow-moat Sandvik managed to deliver respectable results given the company’s exposure to highly cyclical sectors that are affected by general economic conditions. A restructuring executed prior to the coronavirus pandemic, combined with temporary cost savings, helped Sandvik maintain a healthy operating margin of 17% despite a major slowdown in global industrial manufacturing activity. We raise our fair value estimate to SEK 158 from SEK 146 to reflect a rebound in manufacturing activity combined with a lower cost base and further cost savings expected during the upcoming year, which we expect will deliver 150 basis points of margin expansion. Shares remain richly valued, trading at valuation metrics well above historical averages.