ABB Ltd - Break-up? Updated SOTP suggests little upside
Swedish newspaper claims "dramatic news" coming tomorrow
Swedish newspaper Svenska Dagbladet reports that ABB is to present "dramatic news" at tomorrow's
capital markets day. The publication writes that this could be a break-up of ABB. We believe a break-up
could yield operational merits but would see little fundamental potential upside to the valuation. After
re-setting the SOTP element of our valuation for the sell-off in the sector and to reflect peer-group
valuations, we calculate a SOTP-based fair value of CHF 19.0 (prev. CHF 20.5). For details see page 3 in
this report.
Expect a positive message from management
Major news or not, our view is that most capital markets days are almost as much for employees as for
financial markets participants. Despite end-market headwinds it is therefore likely, we think, that the
message from management will be uniformly positive. We expect management to highlight the group's
competitive strengths in, for example, technology, and the group's ability to weather end-market
weakness. It is also possible we will receive more information on the white collar productivity
programme.
Sell end-market exposure and lofty valuation
We rate ABB Sell, reflecting our view that end-market headwinds will likely lead the group to miss
consensus revenue and margin forecasts (UBSe 5-8% below consensus). In addition we think the
valuation looks rich at 11x 2016e EBITA, when a number of peers trade sub 10x. The capital markets day
is due to be hosted by ABB tomorrow in London.
Valuation: PT 18
Our unchanged price target reflects a 2016e EV/EBITA multiple of 11x. At our price target ABB would
trade at a double-digit premium to peers including SKF, Volvo, Philips, Alfa Laval and Siemens.