Schindler Posts Solid 2022: Faster Backlog Execution and Pricing Will Drive Margin Recovery

We are maintaining our CFH 210 fair value estimate and wide moat rating after incorporating Schindler’s solid full-year 2022 results into our model. Like other elevator original equipment manufacturers, Schindler’s margins and inventory levels are currently distorted by long lead times in executing on the order backlog. Supply chain constraints over the past several quarters have led to unusually high inventory levels, and a backlog with more favorable pricing to come in later project executions. On the margin side, higher-priced orders will not likely convert into better group margins until second-half 2023. Similarly, the higher building inventory will not likely release working capital cash flows until second-half 2023 as well. Taking these factors into account our medium-term forecasts include operating margin forecasts that climb back up to precoronavirus (and resulting supply chain shortages that followed) levels not until 2025.