SKF Faces Near-Term Bumps, but Shares Offer Attractive Value, Given Long-Term Prospects

Narrow-moat SKF's first-quarter results were mixed. The industrials division posted 11% growth while the automotive division saw a nearly 3% organic decline in revenue year over year due to supply chain constraints. The second quarter is likely to be more challenging due to the China lockdowns, as the country contributes 20% of group revenue. In April, volume growth declined as some China-based original equipment manufacturers have been forced to shut down manufacturing plants, preventing SKF from making product deliveries. Adding to that, current inflationary pressures increase the risk of slowing economic growth and lower demand for ball bearings. Nevertheless, we see value in the shares, now trading in 4-star territory, and maintain our narrow moat rating and SEK 210 fair value estimate.