Compare 3 big Swedish industrial companies: Atlas Copco, Volvo and Sandvik
Atlas Copco (ATCO B) together with its subsidiaries, provides productivity solutions. The company operates through Compressor Technique, Vacuum Technique, Industrial Technique, and Power Technique segments. It offers piston compressors, oil-free tooth and scroll compressors, rotary screw compressors, oil-free blowers, oil-free centrifugal compressors, gas and process compressors, air and gas treatment equipment, and medical air solutions primarily for use in the manufacturing and process industries. It was founded in 1873 and is headquartered in Nacka, Sweden.
Volvo (VOLV B), together with its subsidiaries, manufactures and sells trucks, buses, construction equipment, and marine and industrial engines in Europe, North America, South America, Asia, Africa, and Oceania. The company offers trucks for long-haulage, construction, mining, and distribution purposes under the Volvo, UD Trucks, Renault Trucks, Mack, Eicher, and Dongfeng Trucks brands; and city and intercity buses, coaches, and bus chassis, as well as associated transport systems under the Prevost and Nova Bus brands. It also provides construction equipment, including excavators, articulated and rigid haulers, wheel loaders, road construction machines, pavers, and compactors under the brand names of Volvo, SDLG, and Terex Trucks. It was incorporated in 1915 and is headquartered in Gothenburg, Sweden.
Sandvik (SAND) operates as an engineering company in the areas of mining and rock excavation, metal cutting, and materials technology worldwide. It offers metal-cutting tools and tooling systems, including boring, drilling, milling, reaming, and turning tools. The company also provides mining and construction equipment and tools, such as crushers and screens, underground drill rigs and bolters, surface drill rigs, underground loaders and trucks, mechanical cutting equipment, rock tools and drills, and parts and services. It was founded in 1862 and is headquartered in Stockholm, Sweden.
Let’s get started as always with ROIC. We wanna see the company consistently having above 10%.
Industrial companies require high investment so we expect to see lower than usual ROIC. Atlas Copco’s average which is 21% is moving up and right now sits at 25%. That is impressive. Volvo is moving up too but averages to 8%. Sandvik’s average is a little bit higher at 11%. So all of them pass the first test.
Next let’s check the earning.
Since none of them has consistent increase we will average 3 years to get a more reliable increase rate. Atlas Copco increased its bottom line 8,99% in the past 17 years which is not bad at all and around 16 billion SEK right now. Volvo is way slower at 5,24% and seems stuck around 16 billion SEK. The same for Sandvik too, at 5,38% YoY earning increase it is not fast enough and 7,5 billion SEK. None of them had significant change in number of shares so the EPS (earning per share) should be the same. So only Atlas Copco really passes this one.
Now it is revenue’s turn.
All 3 had a slow revenue growth, Atlas Copco with 5,42%, Volvo with 4,11% and Sandvik with 3,75%. But Atlas Copco is increasing its net margin from 11% to 14% which is good. But Volvo and Sandvik does not have good margins with 5% and 8% respectively. So again Atlas Copco is performing better than the rest.
What about free cash flow?
Atlas Copco with increase of 11,4% and having FCF to net earning ratio of around 1 is in a good spot. Volvo on the other hand is all over the place, sometimes having negative FCF and averaging around 13,5 billion SEK over the recent years with net earning of 21,5 billion SEK in recent years shows that the earnings won’t turn into free cash which is not good. Sandvik has increased their FCF 9,32% YoY and their earning was turning into free cash with ease.
Now let’s check the debt and quick ratio.
Atlas Copco has a debt of 24 billion SEK, less than 2 years of earning which is manageable. Volvo on the other hand has 153 billion SEK in debt which would be 7 years earning or 11 years of free cash flow which is not that manageable and can easily cause trouble later on. Sandvik was decreasing its debt fast over the recent years and now has 18 billion SEK in debt which can be paid off in 2 years and is considered reasonable.
Atlas Copco always had a good quick ratio, Volvo and Sandvik for a couple of years had less than 1 quick ratio but right now are in good situations.
Let’s look at dividend payout ratio.
All 3 have dividend payout ratio of 40 to 60%. A little bit more than what we would like to see but still okey.
Time to sum it up.
Atlas Copco has a good ROIC, reasonable growth, good cash, low debt and over all good financial situation and good dividend. We will keep it (The B share like always).
Volvo does not have good ROIC thou it is improving, the growth is none existent basically, very low on cash and very high on debt, low quick ratio (recently improved) and very high dividend (compared to cash flow). So for now we will say goodbye to it, maybe in a couple of years when we see more improvements.
Sandvik is better on the ROIC that Volvo, low on growth just like Volvo, better cash, debt and overall financial situation. So we will keep an eye on it for now until we can find more Atlas Copco level good companies.
Thank you for your time and see you on the next story.