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India Equity Research Reports, IPO and Stock News
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We believe significant optimism is built into ABB's share price that is highly unlikely to come
through. Current price implies ABB will grow 19% for the next 10 years and 5% growth to
perpetuity (WACC=12.5%, EBIT 9.5%). Despite low free float, we think it will be difficult for the
stock to outperform from hereon. Sell
Weak macro, weaker micro
The last three years have seen weak order inflows (OI) with single-digit growth in FY08/FY09 and
a decline in FY10. This low growth, when compared to high double-digit growth prior to FY08,
sums up the predicament of a company dogged by weak business flow, rural business losses and
steep competition from the Chinese and Koreans in higher kV equipment, which was once
considered a stronghold of technology-superior multinational companies. Industry overcapacity
and strong competition from local and overseas players will continue to be a challenge for ABB in
the next two to three years, in our view.
Short-cycle order pick-up in 2Q11; power order remains elusive
ABB’s short-cycle orders picked up in 2Q11, which led to a 44% increase in OI yoy, though on a
low base; 1H11 OI was up 15% yoy. We note that power OI continues to be weak for ABB, due to
both macro and micro issues. We project an OI CAGR of 15% for FY11-13F, and we see a
greater probability of downside to our projections.
High valuation backed by low free float; Sell with a target price of Rs582
Despite weak business performance in the last three years and weak business outlook, ABB’s
FY12F P/E remains high at 31x. In our view, this reflects support from its low free float rather than
optimism on the business. The low free float might limit downside from here, but given the weak
macro and micro environment we question whether the stock can outperform from current levels.
We note the stock traded at high multiples during FY05-08 when both earnings growth and ROE
were in high double digits, but since then both macro and micro issues have led to significant
erosion of earnings growth and ROE for the company. We resume coverage with sell rating and
Rs582 target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe significant optimism is built into ABB's share price that is highly unlikely to come
through. Current price implies ABB will grow 19% for the next 10 years and 5% growth to
perpetuity (WACC=12.5%, EBIT 9.5%). Despite low free float, we think it will be difficult for the
stock to outperform from hereon. Sell
Weak macro, weaker micro
The last three years have seen weak order inflows (OI) with single-digit growth in FY08/FY09 and
a decline in FY10. This low growth, when compared to high double-digit growth prior to FY08,
sums up the predicament of a company dogged by weak business flow, rural business losses and
steep competition from the Chinese and Koreans in higher kV equipment, which was once
considered a stronghold of technology-superior multinational companies. Industry overcapacity
and strong competition from local and overseas players will continue to be a challenge for ABB in
the next two to three years, in our view.
Short-cycle order pick-up in 2Q11; power order remains elusive
ABB’s short-cycle orders picked up in 2Q11, which led to a 44% increase in OI yoy, though on a
low base; 1H11 OI was up 15% yoy. We note that power OI continues to be weak for ABB, due to
both macro and micro issues. We project an OI CAGR of 15% for FY11-13F, and we see a
greater probability of downside to our projections.
High valuation backed by low free float; Sell with a target price of Rs582
Despite weak business performance in the last three years and weak business outlook, ABB’s
FY12F P/E remains high at 31x. In our view, this reflects support from its low free float rather than
optimism on the business. The low free float might limit downside from here, but given the weak
macro and micro environment we question whether the stock can outperform from current levels.
We note the stock traded at high multiples during FY05-08 when both earnings growth and ROE
were in high double digits, but since then both macro and micro issues have led to significant
erosion of earnings growth and ROE for the company. We resume coverage with sell rating and
Rs582 target price.
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