Saturday 24 August 2019

Share Watch: High-rise cities giving a lift to elevator giant Schindler


Schindler was founded in 1874 in Lucerne, Switzerland, and has become one of the world’s leading producers of elevators, escalators and auto walks. Stock Image: Getty
Schindler was founded in 1874 in Lucerne, Switzerland, and has become one of the world’s leading producers of elevators, escalators and auto walks. Stock Image: Getty

John Lynch

The English poet Lord Byron, who was fond of open spaces, once called the "hum of human cities" a "torture".

So he won't miss not being around today, as experts proclaim that this year 55pc of the world's population will be living in cities.

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That's double the number of city dwellers in 1950, and the UN predicts that this number will keep growing, making the creation of low-carbon cities one of humankind's most urgent tasks.

It also inevitably means that cities of the future will have to build high. So if your talented nephew is looking for a good job in a guaranteed growth sector, point him immediately in the direction of the elevator business.

The invention of the electric elevator may be one of the cultural milestones of our age, transforming the social and architectural landscape of the modern city.

The focus of elevator expertise lies with five specialists - Otis, Thyssen, Kone, Mitsubishi and our company this week, Schindler, which estimates it moves a billion people a day.

Schindler was founded in 1874 in Lucerne, Switzerland, and has become one of the world's leading producers of elevators, escalators and auto walks. The company has grown from a local manufacturer of machines into a world business, supplying its products for every type of building.

It has more than 1,000 branch offices in 100 countries and manufacturing plants in US, Brazil, Europe, China and India.

It employs 65,000 people and is valued by the stock market at €20bn. Over half of the group's income comes from the installation of new equipment, the rest from servicing.

Schindler's global reach is considerable. Its Europe, Middle East and Africa region is its largest market, accounting for almost half of the group's revenue.

But revenue growth in the last five years has been a modest 12pc.

In this region, the German market is significant and traded well last year. East European markets show modest growth, but they are only slowly recovering from the financial crisis. Brexit is hampering Schindler's business in the UK.

The Middle East varies between individual markets but Schindler's sales and market share are holding up.

For all elevator groups, the action today is in the Asia/Pacific region, as seven of every 10 elevators sold in the world are in this region.

Schindler has seen sales increase by almost one third in the last five years, the business driven by the Chinese and Indian markets. The Chinese market is highly competitive but the group has achieved above-market growth in this challenging environment. It also benefited from the favourable conditions in India with the increase in urbanization.

Schindler's revenues in the Americas are underpinned by the formidable strength of the US market. Recent trends show moderate construction growth and investors are pleased that the group has increased its market share.

The group's sales trend has been positive, rising 20pc to €10bn in the last five years. But net profit has only increased by 11pc to €0.9bn in the same period.

Today, the company shares trade at €184 and while this is an increase of 14pc over its yearly low, it is below the yearly high of €213.

Most observers are of the opinion that Schindler's shares are trading at an 'elevated' multiple of 25.

Global mega-trends continue to favour the elevator/escalator business, with population growth and a demand for more vertical space to live in. In addition, with new cable technology making a 1km lift a reality and moving at speeds up to 75kmh, Schindler and its rivals are in a good space.

However, it might be best waiting to assess the full impact of the US/China trade war before investing.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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