Business World

Tuesday 19 June 2018

Two-for-one special offer promises Swede success

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'Another one of my Swedish heroes is the company we are examining today, the Stockholm-quoted Atlas Copco'. Stock picture
'Another one of my Swedish heroes is the company we are examining today, the Stockholm-quoted Atlas Copco'. Stock picture

John Lynch

I admit I've had a soft spot for Sweden since I saw their footballers take on Brazil in the World Cup in 1958.

The Swedes lost 5-2, but they were beaten by a Brazilian side, including the 17-year-old Pele, which would go on to change the 'Beautiful Game' forever.

I admired the battling qualities of the spirited, if beaten, Scandinavians in that competition 60 years ago (God help us) and thought they showed an extraordinary organisational ability. When set a task they did it well and with style.

I'd later identify the same qualities in other fields of Swedish endeavour; Electrolux made pretty decent vacuum cleaners; I've personally been the proud owner of a Volvo car and I freely admit I could listen to Abba songs all day long.

Another one of my Swedish heroes is the company we are examining today, the Stockholm-quoted Atlas Copco, Sweden's biggest industrial group which opened a new Dublin office a few months ago.

What piqued my interest in the company was the announcement last year that the group planned to split its key mining and civil engineering interests from the rest of the group this year and that this move was likely to enhance investor returns.

Well, we now know that the proposal got shareholder approval in April and a new company had been, as the company puts it, 'dividend' out. It has been given the name Epiroc. Atlas Copco continues and it will handle the successful automation and digitalisation business as well as the compressors and power tools that Atlas has become famous for.

Not surprisingly, the investor classes have been excited about the prospects of getting two fine businesses out of one and it promises a new phase in the extraordinary history of the group, beginning this month as the split takes effect.

The management was at pains to stress that the split was happening so that the two sides of the business could get the focus they need and not because of any perceived weakness.

And although the Epiroc end of the business is more cyclical, as recent problems in the mining sector have demonstrated, both operations will enjoy the high margins (20pc plus) which the company has grown used to.

Atlas Copco, which has the Wallenberg family investment as its main shareholder, started life in Victorian times as a service provider to the growing Swedish railway network.

It had its tribulations and required several bouts of intensive care during recurring recessions but developed a particular specialty in pneumatic tools and compressors that gave it a very distinctive edge in advance of World War II and subsequently. After the war, it embarked on an acquisitions spree, especially in the United States.

Today it manufactures in some 20 countries, employs around 45,000 people and has global revenues worth €11bn. It claims to have its industrial tools in three out of every four cars worldwide.

The group's current standing is enhanced by the amount of innovation it is bringing to businesses that need scientific solutions to their problems. Atlas has perfected some high-tech vacuums for use in the semiconductor and food sectors. It also recently picked up an international commendation for the 'intelligent screwdriver' it has brought to the market.

The current chief executive, Mats Rahmstrom, has been telling the press about how he hopes to keep up the momentum of quality earnings for the future.

He says he has an on-going in-house project to collect data from some 85,000 Atlas Copco products installed on sites around the world ranging from factories to oil rigs. He believes he can sharpen after-sales services by anticipating maintenance needs before they become a problem! That, I think, is really getting down to the fine print.

The shares have doubled in the past five years and there is an appreciable gap between the price-earning multiple for Atlas Copco and rivals like Sandvik, Ingersoll-Rand or Stanley Black & Decker. The stock currently stands at €34.45, giving them a market value of €43bn. A high quality group and the shares are worth having.

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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