That is why Volvo’s stock price on the rise

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Dagens Industri  /  March 9, 2017

Industrial Group Volvo shares are up at the highest level in almost ten years. But the stock has more to give?

This week, Volvo's stock price blew through the Volvo 122-kronor barrier, which means that the shares are traded at the highest level in almost ten years. On Thursday, shares continue up by just under 1 percent, including when Nordea raised its recommendation for the shares to purchase, and in a year it has risen by over 40 percent.

But shares can still rise more.

"I believe that the shares are worth buying even at these levels," says Hampus Engellau, analyst at Handelsbanken.

Engineering sector is generally good on the Stockholm Stock Exchange, but in addition there are several reasons in addition to the right to Volvo's share going strong.

"Profitability in the trucks, which is the crux of the company, has now risen for eight consecutive quarters compared with the previous year," says Hampus Engellau.

Meanwhile, savings programs initiated by Volvo’s previous CEO Olof Persson are now being realized. But current CEO Martin Lundstedt, who took office in October 2015, has also worked hard to Volvo to deliver shareholder value.

When he took office, there was talk that he would "Scanify" Volvo (Martin Lundstedt previously was the CEO of competitor Scania), that is more focus on customers, cost control and productivity improvements.

"That sounds a little like consulting snack but when you talk to people in the organization, it really feels like he had with the people on the train, and that the units of the Volvo become more independent and entrepreneurial," says Hampus Engellau.

"All these measures have led to earnings improvements and it is reflected in the valuation of the shares. Volvo's profitability is almost as high as Paccar."

The stock market has speculated on whether Volvo’s construction equipment business, VCE, will be spun off and distributed to the shareholders, a business with a turnover of just under 50 billion. A measure that fueled the speculation is that VCE's headquarters was relocated back to Gothenburg while the business gradually started to separate from the rest of the group.

Factors that pushed the Volvo share price in recent days isn’t just about VCE. The week, statistics from China showed that its excavators sales there rose 300 percent in February compared with the same month last year.

According to an analysis by Nordea, Volvo excavator sales rose faster than the overall market with a growth of over 500 percent compared to February last year.

Hampus Engellau would welcome a merger of VCE and Atlas Copco's mining operations, which Di earlier reported , although he believes that the synergies between the companies is limited.

"However, it is a merger that probably would be relatively simple and easy to do."

Such bundling would create a new workshop sixth with just over 80 billion in sales.

"The company would be quite like Caterpillar and Caterpillar valued at P / E of 30," says Hampus Engellau.

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He has lifted the Volvo with 62 billion

Magnus Alfredsson, Private Affairs SE  /  March 9, 2017

Martin Lundstedt was hired as a savior for Volvo for just under a year and a half after the former CEO was fired. And since then, the reports have become increasingly better and the market has shown their appreciation - including dividends, the value increased by more than 62 billion.

For several years, the analysts of the stock market highlighted the Volvo as the company that had the best chance among the larger companies to speed up the course. But time after time, Volvo has made the market disappointed with poor results - and hopes of a boost has been constantly postponed.

Why did former CEO Olof Persson fired in 2015 and Volvo's Board of Directors made the unusual grip hiring former CEO of Scania Martin Lundstedt. Scania has historically been clearly more profitable than the Volvo and are often regarded as more innovative and had the lead in the development of new truck models.

So it's easy to see why Lundstedt could redeem Volvo from slumber if he could transfer some of what has been good at Scania to Volvo. And slowly but surely, he has managed to convince the stock market that the company is on the right track - and the best way is to surprise at the reports and there has also been a number of occasions.

Therefore passed share level $100 in November last year and since then the trend has been strong, with a further 20 percent rise. And on Thursday, when the stock ends at the level of just under SEK 124 is the highest figure in a decade - and in addition, Volvo has passed the course level when the stock market was high in April for two years ince.

It is slightly higher than in the accounts for just over a month ago and the course has recently been pushed up by expectations around the construction equipment operations in the business area VCE. First, weak demand for a long time now turned up - not least in China, where the total increase for the movers in February are several hundred percent up.

In addition there since ancient speculation that Volvo will spin off VCE in any form - and spin-offs is something the stock market in general always like. That 1 + 1 equals more than 2 is an old truth that repeatedly actually proves correct.

Next in line for the Volvo public's Annual General Meeting on April 4 where Martin Lundstedt will speak before a gathering satisfied shareholders - for once. The meeting will decide on increasing the dividend by 8 percent to SEK 3.25 is also a factor that allows new year high may be imminent.

Private Trades speculated at the level of SEK 119 at year-end that the shares could have 5-10 percent of potential left in the near term. But with a better profitability for VCE already this year there may be an almost cautious assessment.

We are also supported by an analysis of Nordea on Thursday that put the purchase of Volvo and which raises the target price to SEK 145 (125). The reason is that the brighter market prospects will enhance forecasts of market analysts plus Volvo shares are traded - despite its nice rise - at a discount to its sector peers.

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Nordea: Time to buy Volvo

Dagens Industri  /  March 9, 2017

Continued improved market outlook contributes to Nordea believes it is a good location to buy Volvo shares.

It is clear from an analysis dated on Thursday, where the bank also highlights that there is scope for increased consensus estimates for Volvo, and that the share is trading at a large discount to sector colleagues.

News agency Direkt reported on Thursday Nordea’s upgrade recommendation for Volvo to buy (and hold), and has raised its target price to SEK 145 (125).

Nordea assumes a more positive market scenario in 2017 for Volvo Truck in Europe and North America, and Vovo Construction Equipment (VCE) in Europe and China.

"After five consecutive years of sales declines, we now expect a return to growth, which should support continued margin improvement," wrote Nordea in the analysis.

After the volumes within the Volvo Group total dropped by 25 percent during 2011 to 2016 (minus 18 percent for trucks and minus 45 percent for VCE) Nordea now believe that Volvo's total volumes will increase by 3 percent in 2017 and 5 percent in 2018.

Nordea now expects Volvo Truck in North America to fall by 2 percent (previous forecast was a 9 percent decline).

In Europe, Volvo Truck is expected to remain unchanged (previous: minus 5 percent).

Volvo Construction Equipment is expected to grow by 10 percent in Europe (previously 5 percent) and by 20 percent in China (previously 10 percent).

The bank points out that the growth forecast for the Volvo is back-loaded than in 2017, primarily as a result of the trucks in North America is expected to return to growth in the second half of the year.

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[Wobblin-Goblin]

"Profitability in the trucks, which is the crux of the company, has now risen for eight consecutive quarters compared with the previous year," says Hampus Engellau.

I didn't know a year had eight quarters to it. Learn something new each day.