Industry Stocks Facing Challenges: A Closer Look at Q2 Reports
Falling profits and steeply rising stock prices have led to overvalued stocks in the industrial sector this spring. Following the second-quarter reports and a shaky week on the stock market, this year’s returns are not as impressive as before.
The reasons for the rapid decline in early August seem to be varied. However, Placera’s analysis of 13 industry-related companies does not show any obvious signs of economic downturn, at least not judging from the figures before the mid-year.
Order intake was in line with the same period last year. But unlike the first quarter, the results in most cases for this year’s second quarter were better than the same period last year.
No Drama in Order Intake
The reported order intake, which indicates demand in the quarter, changed on an annual basis by low single-digit percentages. One company that stood out on the positive side was Engcon. In the CEO’s statement for the second quarter, Krister Blomgren explained how low inventory levels and a slightly increased willingness to invest by customers improved the order situation. Additionally, it should be noted that the company had weak comparative figures to thank for.
Among the larger companies, Alfa Laval reported an organic growth in order intake of 4 percent. The best and only positive contribution came from the “Marine” division, with a growth of over 30 percent, driven by demand from shipowners with increasing needs for advanced pump systems and digital solutions. In other segments, Alfa’s order intake decreased by double-digit percentages, highlighting the importance of successes within “Marine.”
Varied Result Development
If the first quarter saw clear declines in results across the board, the second quarter featured more mixed results. Munters, Alleima, and ABB increased their results on an annual basis by over 20 percent and also exceeded analysts’ expectations for operating profit.
Engcon, Epiroc, and NCAB, on the other hand, reported results that were more than 20 percent lower than the same period last year.
Good Total Return
Previous record prices and signs of a cooler economy have led to weaker stock performance among several of the celebrated industrial companies.
Atlas, Alfa, and Epiroc, which were up over 20 percent earlier this year, have declined since the record prices, and the returns are now lower compared to the beginning of the year. ABB and Munters, despite having weak stock performance recently, can still boast a total return of almost 30 percent this year.
Just like in the spring, expectations for future earnings are still relatively high, and several of the industry-related companies are highly valued. Engcon, which reported strong growth in order intake and a clear decline in results, is the highest-valued company on the list. Adjusted for debt, the company is valued at 32 times the expected operating profit next year. NCAB, Atlas, and Indutrade are also valued, as often, highly based on expected future results.
The recent downturn is a much-needed break from a long period of rising prices, declining results, and high valuations when looking back.
(Link to the article with graphs, illustrations, and images on Placera.se)
Analysis: Overall, the industrial sector has faced challenges with falling profits and rising stock prices. Despite a mixed bag of results in the second quarter, companies like Engcon and Alfa Laval have shown positive growth in order intake. However, the industry still faces high valuations and uncertainty in the market. Investors should carefully monitor these trends and adjust their strategies accordingly to navigate the changing landscape of the industrial sector.