SKF: BUY

BEFORE THE 2H REBOUND

With its guidance cut SKF has now re-based expectations down to a level where, on 12x PE and less than 10x EBIT, we feel comfortable buying for an 2H rebound, continuing on into 2016.

The CFO’s guidance communication was poor. To the extent he sent an apology via email post the conf call. Sequential demand is always down in 3Q due to seasonality and we now feel that there is upside going into the quarter.

Clearly given reports from cap goods following SKF there is growth out there. Particularly in Europe. There is a real possibility that SKF is not prepared to sacrifice margin for growth, and de-stocking in the quarter has not helped.

Anything in the share price for the automotive sale has now been removed, but potential for self-help remains.

Having underperformed the SXNP by 20% since mid April, we would be a BUYER.