Investment Idea

Strong Sandvik Q3 report may lift OMX30 further

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18/10/2022 | 2 min read

A strong Q3 2022 report from Sandvik, with both good demand and order intake plus announced positive currency effects in Q4 2022, can give the OMX30 index a boost.

The S&P500 index fell 2.4 per cent on Friday, October 14. The main reason for the decline was a US household survey where inflation expectations a year from now had risen from 4.7% in September to 5.1% in October. While consumer confidence in the US is still at reasonable levels, the comparable indices have witnessed a free fall in Germany and Sweden (down to some 30 in Germany, where 100 is a neutral value) due to rising energy prices and interest rates.

On a positive note, Sandvik reported a better-than-anticipated adjusted operating profit in Q3 2022 on Monday, 17 October. The adjusted EBITA landed around SEK 5.9 bn compared to the consensus forecast of SEK 5.4 bn. Order intake in Q3 2022 increased by 8% organically versus 4.6% anticipated by analysts. The company's CEO writes that business segments such as mining, aerospace, energy and automotive have strong growth prospects or are still in a recovery phase with continued growth potential. Furthermore, Sandvik is guiding for positive currency effects (due to the weak SEK) of approximately SEK 1.4 billion on the Group's earnings in Q4 2022.

The OMX30 index rose by 2.1% on Monday following Sandvik's strong quarterly report. The S&P500 index also later Monday rebounded by 2.6%. The starting point for an upward price rebound for the OMX30 index looks promising from a fundamental point of view. As illustrated in the chart below, the average forward p/e for OMX30 companies has declined from 18x a year ago to just over 12x at the time of writing. Now there could be a turning point in that respect.

Price / Earnings (P/E)-valuation of OMX30 (NTM12) 1-year-chart from October 2021 to October 2022

Source: Capital IQ.

There are several large industrial companies included in the OMX30 index, such as ABB, Alfa Laval, Atlas Copco, Autoliv, Hexagon, SKF and Volvo, most of which should benefit from the trends described in Sandvik's Q3 report. In addition to strong demand from industrial customers, the positive effects of a weak SEK should continue into Q4 2022. The latter should be most noticeable for Volvo, with one of the most significant net exports from Swedish plants of the OMX companies, Ericsson, and Boliden.

OMX30, a daily one-year share price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The OMX30 index looks technically to have bottomed around the 1800 level and is now slowly moving upwards (albeit choppily) in a positive secondary trend.

OMX30, a weekly five-year share price chart

Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA50: 50-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence


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