ABB has market-leading artificial intelligence aim
There was a very clever bumper sticker doing the rounds in America a few years ago. It read 'Hire the Artificially Intelligent'. It was surrendering to the inevitability that sooner rather than later robots will take over the world. But then people have been predicting as much since the 1930s.
Nevertheless, sometime soon it is going to happen and ABB, the company we are analysing today, will be front and centre of the change.
The Swiss-Swedish multinational is a world leader in power and automation, as well as transport and infrastructure. It has operations in more than 100 countries employing 132,000, and is valued at $53bn (€48.6bn). Based in Switzerland, the company retains a big Swedish interest in that the famous Swedish business family Wallenberg holds 10pc of the stock.
ABB is the result of a 1988 merger between the Swedish company Asea AB and the Swiss concern Brown Boveri. Asea was a major force in the introduction of electricity to Sweden, while Brown Boveri cut its teeth on power generation before getting into turbines and transformers. Following the merger, the group went on an acquisition spree purchasing parts of Westinghouse and Rolls Royce, but wisely offloaded its nuclear business. By the early 2000s, its high debt levels and asbestos liability almost bankrupted the company, but it recovered and by the end of the decade was back again on the acquisition trail.
Today, the group has four market leading divisions: power grids, electrification products, industrial automation and robotics - each division large enough to be a significant standalone company. ABB is the world's biggest builder of electricity grids and is the company's largest business. This business is a world leader in power technologies helping the growing need for smarter and greener power grids. The division employs 37,000 worldwide and has revenues of $11bn (€10.1bn), three-quarters coming from utility companies.
Electrification products are the group's second largest division with revenues of $9.3bn, employing 40,000 worldwide. It serves a wide range of customers who are connecting, protecting and controlling electricity. Its product portfolio includes sub-station packages, solar products, electric car chargers and systems that integrate lighting, ventilation and security of buildings.
The industrial automation division is the world's leader in producing 'control solutions' for industry. Wherever there is an automatic solution needed, from mining to pharmaceuticals, ABB finds one. Though this division is ABB's smallest, it is in the forefront of the fourth industrial revolution where the internet meets industry.
The Swiss company has the second largest robotics business in the world with $8.7bn sales, employing 29,000 and over 300,000 robots installed worldwide. By 2025, it is estimated robots will push productivity up 30pc and lower labour costs by 20pc. Recently the company introduced a robot with dual arms and flexible hands that will automate most industrial processes. In addition, the company is moving to artificial intelligent robots and has set up an alliance with Microsoft to develop any new technologies required.
ABB revenues last year were a considerable $33.8bn (€31bn), but down 5pc on the previous year. Thanks to its cost savings programme, net income was up 2pc to $1.9bn. Free cash flow also improved up 5pc to $3bn.
Investors were pleased with the company's eighth consecutive dividend increase, now 0.76 Swiss francs (70c) per share. The share price in the last five years has seen a low of 16 Swiss francs, today it trades at 24 Swiss francs (€22), a five-year high, with a price earnings multiple of 19.
Last year, the company completed its $3.5bn share buyback programme and indicated it intends spending a similar amount in the next three years. ABB has a strong investment case. Its significant market presence, global footprint, shares in a safe currency and world automation leadership all help. The share is worth considering, but it would be better to buy on the dip.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned