UPDATE: SKF

CLOSING HALF POSITION FOR -3.4% LOSS

We originally bought SKF in mid July which proved to be a disaster timing wise.

We doubled up on 21st October as we felt the bad news was out there and in the price.

The new CEO has a lot of levers he can pull, in particular in the auto division, where any signs of a sale will be taken very well.

The CMD tomorrow being the key catalyst for us buying more.

However following the 8.5% rally since we bought them on 21st October we feel it is prudent to take half of our position off here as SKF has built up expectations into tomorrow CMD.

Taking half off for an overall loss of 3.4% if you bought them originally or a nice 8.5% profit since we pushed them again on 21st.

 

BUY INTO CMD

Wednesday • 28 October 2015 • 17:08

The bad news is out there now for SKF. The organic number was much worse than even the whisper number, and the weakness was broad based across divisions.

The mid single digit downgrades are now out there and in the price. The next thing we have is the CMD in November. The new CEO has a lot of levers he can pull, in particular in the auto division, where any signs of a sale will be taken very well.

The stock still screens extremely cheaply vs the sector and any macro pick up from a very low sentiment base will be felt first at SKF. It does feel like expectations are now re based. With some solid enough prints coming in from Atlas and ABB, there is a decent chance industrials squeeze from here.

 

BEFORE THE 2H REBOUND

Monday • 20 July 2015 • 14:48

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.