Epiroc lists in Stockholm
One of the world's biggest mining equipment suppliers, Epiroc (STO:EPIA), has listed on the Stockholm stock exchange, cementing its separation from parent company Atlas Copco.
Jacqueline Holman
Epiroc is now a listed entity on the Stockholm stock exchange
18 JUNE 201818/06/2018commentsshareThe company's shares started trading on the Nasdaq Stockholm Monday, less than two months after Atlas Copco shareholders voted to spin out the mining equipment and infrastructure businesses at the company's April 24 annual general meeting.
The split had been planned for about a year, with Atlas Copco shareholders each receiving one Epiroc share for each of their Atlas Copco shares.
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Epiroc said its total number of outstanding shares was 1.2 billion, of which 823.8 million were A shares and 390 million B shares.
Epiroc CEO Per Lindberg said while the company was proud of its long and productive heritage in the Atlas Copco group, it looked forward to being independent and to "serving our customers in an even more focused way", and delivering customer and shareholder value.
DNB Markets analyst Olof Larshammar said Epiroc was a "compelling investment case" and initiated its coverage with a "buy" rating and a SK98 (US$11.10) target price.
It based the view on Epiroc's "best-in-class EBIT stability" due to two-thirds of its revenue coming from aftermarket and assembly-based production, as well as its market-leading position in a niche set to outgrow underlying mining capital expenditure and operating expenditure.
"We believe a premium valuation to peers is justified on our view that Epiroc enjoys greater earnings stability than peers given higher aftermarket sales and assembly-based production," Larshammar said.
He said when valuing Epiroc on discounted cash flow and peer group multiples versus Swedish and international peers, DNB ended up with values of SK98-108 per share.
"In our view, the Epiroc investment case is very interesting. We believe the key positives are: exposure to a mining industry recovery; secular growth from greater electrification of equipment; aftermarket revenues being driven by mines getting ever-deeper; depletion of the ore grades; and driverless mining equipment," Larshammar said.
He said there was also potential upside from further bolt-on M&A, which could add around SK3-4/share annually.
The bank forecast Epiroc to generate a 2018-2020 EBIT compound annual growth rate of 15%, due to a stronger recovery in mining capex, as well as secular growth, leaving it 5-8% above consensus for the period
"Additional upside could be M&A which we calculate could add some 3% per year to EPS which is not included in our forecasts," he said.
Epiroc's A shares were trading at SK90.85 Monday afternoon, up from the open of SK88/share, while its B shares were at SK85.80, up from the open of SK84/share.