Epiroc Earnings: Order Intake Reaches Record Levels, Supported by Demand for Aftermarket Services

Narrow-moat Epiroc EPI A recorded organic order growth of 1% (excluding Russian orders) during the first quarter, which was somewhat weaker than what its closest competitor Sandvik reported. Nevertheless, order intake of SEK 15.1 billion is a record for the group, highlighting the strong demand for its aftermarket services as well as automation equipment. Acquisitions added a further 10% to order growth, as the group expands its solutions for the digitalization of the mining sector, which supports our above-GDP outlook for the group. Management expects demand to remain at a high level. We maintain our SEK 156 fair value estimate and view shares as overvalued.

While supply chains remain a constraint for equipment deliveries, the execution of its order backlog resulted in organic revenue growth of 8%. With travel lead times for equipment expected to improve during the second half of the year and a book/bill ratio of 1.1 times, we anticipate a similar organic growth rate during the full year. Epiroc continues to benefit from high demand for midlife upgrades of its customers’ aging fleet, which will help mitigate the cyclicality of the business to a deteriorating economic outlook.

Operating profit grew 20% during the first quarter, a slower pace than its 25% reported revenue growth as organic growth was offset by margin-dilutive acquisitions. Nevertheless, the group’s adjusted operating profit of 23.0% remains impressive and highlights the group’s brand reputation for reliability and strong aftermarket offering. Three further acquisitions were completed during the first quarter aimed at strengthening its positions in automatization and electrification, thereby reducing its dependence on cyclical commodity prices.