Investment Idea

Investment idea: Atlas Copco

23/06/2017 | 3 min read

The group intends to split of its Mining and Rock Excavation Technique business area and its Construction Tools business.

Atlas Copco is an in 1873 founded company, which manufactures industrial tools and equipment. The firm is divided into four main segments: Compressor Technique (34,5% of Operating Income), Construction & Mining Technique (30,9% of OI), Vacuum Technique (19,4% of OI), and Industrial Technique (15,3% of OI). It operates in more than 170 markets around the world.

Solid Q1 results

The industrial company reported first quarter results for 2017: Revenue was up by 24.8% YoY, especially due to strong growth for vacuum and mining. Positive volume and currency changes drove an operating income increase by 37% YoY. Earnings per share were reported at SEK 3.29 (+38.24% YoY).

Splitting the company

On 16 January 2017, Atlas Copco announced its intentions to split the Group into two listed companies, splitting of its Mining and Rock Excavation Technique business area and its Construction Tools business. The division, which is intended to be named “Epiroc”, would have approximately 12,000 employees and pro forma revenues of SEK 28 Billion.

One of the main drivers for the split was the management focus: “The Board and Management believe that long-term shareholder value will be created by splitting the Group into two separate companies,” said Hans Stråberg, Chairman of the Board of Directors of Atlas Copco AB. “Both businesses are global leaders in their respective fields and will benefit from a more focused management responsibility.” (Source: Atlas Copco corporate press release)

Furthermore, CEO Ronnie Leten stated that the, in the future separated, companies are different businesses with different drivers. Therefore, “a split will increase their respective abilities to add value to customers, grow the business and attract talent.” (Source: Atlas Copco corporate press release)

Epiroc is expected to be listed in the second quarter of 2018 on Nasdaq OMX Stockholm and associated costs are expected to be relatively minor and primarily associated with tax implications, according to JPM Analysts. In addition, the company announced that Ronnie Leten would step down from his role as CEO, to be replaced by Mats Rahmstrom.

The Atlas Copco stock (ATCOA) quotes with a P/E of 27.68 at around SEK 337, representing a market capitalization of SEK 401.7 Billion. 10 Analysts value the stock with BUY, 15 with HOLD and five with SELL. The consensus target price is set at SEK 342.26. However, the future development need to be seen.

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