Q4 earnings increase our conviction
that markets are overestimating the
level of cyclical earnings risk in sector
2008-2009e earnings
􀀗 Following Q4 announcements, we have
upgraded aggregate 2008e earnings for
our large cap European machinery
coverage by 15% and 2009e by 11%
􀀗 We upgrade MAN TP to EUR100 from 93
and our rating to Overweight from
Neutral. We upgrade SKF TP to SEK140
from 130 and reiterate Overweight. We
downgrade Metso TP to EUR35 from 42
and reiterate Neutral. We downgrade
Volvo TP to SEK120 from 150 and
reiterate Overweight
17% earnings growth costs 11.8x
The European machinery sector has been hit hard by worries
of a cyclical decline in earnings in 2008-2009 on the back of
1) the slowing US economy and 2) tighter worldwide credit,
which is curtailing capex programmes. Since its peak in July
2007, the MSCI European Machinery index has declined
some 31%, making machinery the weakest capital goods
component, ahead of electrical equipment, down 23% from
its 52-week high, and aerospace and defence, down 16%
from its 52-week high.
These worries are rational, but we argue that all the signs are
that they are exaggerated. Although cyclical risks obviously
remain, we estimate that on current valuations (European
machinery sector 2008e PE 11.8x compared with global
capital goods sector 16.5x; large cap machinery MACC
11.8% compared with global capital goods sector 11.0%) the
investor is being well paid to take them. We forecast an
average 17% 2008e earnings growth over the 30 stocks in
HSBC’s European machinery sector coverage. Our top
picks among the large cap European machinery stocks are
Atlas Copco (Overweight, TP SEK120), MAN (Overweight,
TP EUR100), SKF (Overweight, TP SEK140) and Volvo
(Overweight TP SEK120).

目录

Investment Summary 3
Valuations 10
Atlas Copco 12
MAN 16
Metso 20
Sandvik 24
Scania 27
SKF 31
Volvo 34
Disclosure appendix 40
Disclaimer 43