Restructuring makes Electrolux and ABB attractive
The Stockholm stock exchange continued along in November, but there were large differences between small and large companies. Small caps rose by 4 percent, while larger companies – those in the OMX 30 − basically yielded zero returns. The broad index closed up slightly.
The economy remains weak, but some signals and data show it is on the verge of bottoming out. This is the reason why several engineering companies are able to defy the chill and continue to climb. Just as they fell when the economy was strong almost two years ago, they are now rising as it hopefully bottoms out around these levels and improves towards the spring.
Our base assumption is that we will avoid a recession, so profits should be able to keep up with current levels and the stock market climb further upwards, albeit a little less than before.
Last month we wrote about the disappointing NCC. Since then the company has sold its head office and we are now awaiting a sale of NCC Roads. Margins will gradually improve and the equity ratio will increase as the money from sales enters the balance sheet.
Speaking of a strong balance sheet, several companies seem to want to address this through share repurchases. We guess that ABB will launch one of the largest repurchase programmes in Swedish history next year as the money from Power Grids enters the books. This creates a cushion in the share. We also believe that the company will change its structure, so we once again took the opportunity to buy more shares in ABB, which is now one of our largest holdings.
We also continue to buy more shares in Electrolux. The spin-off of Professional Products is approaching and will probably be loved and is likely to reveal how low the valuation becomes for the remainder of Electrolux. We are very much looking forward to this demerger.
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