Sandvik Earnings: Order Growth Supported by Demand for Electric Mining Equipment

Narrow-moat Sandvik SAND reported organic order growth of 2% despite growing concerns over the health of the economy. Order intake of EUR 34.4 billion during the first quarter included two significant orders for battery mining equipment, which continues to be a structural tailwind for Sandvik and will help reduce the group’s cyclicality to an economic downturn. The group’s short-cycle machining segment reported organic order growth of 5%, driven by double-digit growth from aerospace and energy customers. We maintain our SEK 193 fair value estimate and view shares as fairly valued.

The execution of strong backlogs from the prior year led to organic revenue growth of 13% during the first quarter, with acquisitions and favorable currency movements contributing a further 4% and 6%, respectively. Price increases managed to offset cost inflation but the revaluation of unhedged balance sheet items, saw EBITA margins compress slightly (40 basis points) to 19.8%. The higher-margin aftermarket business continues to be more resilient than demand for equipment, which will help support profitability as demand for (non-battery-powered) equipment declines.

Sandvik’s balance sheet remains healthy with a net debt/EBITDA ratio of 1.3 times, allowing the group to continue its acquisitive strategy to expand its offering into digital solutions and weather any possible economic headwinds.