Epiroc AB

The stable outlook reflects our view that the company's flexible and highly profitable production system, and low debt should allow it to remain fairly resilient to industry volatility, with FFO to debt significantly above 45% at the bottom of the cycle, complemented by positive FOCF. We expect Epiroc will continue to withstand the volatility in its end markets, and the EBITDA margin to remain above 18%, even though sales are likely to show some volatility over the cycle. We could downgrade Epiroc if its FFO to debt fell below 45% for an extended period. This could follow significant debt-financed acquisitions or shareholder returns, which we consider unlikely at this stage. If the industry conditions weakened, we expect management to lower

...Epiroc is an established provider of rock drilling, excavation equipment, consumables, and services, with industry leading margins. Epiroc has a No.1 or No.2 position in each of its product offerings globally. The company is experiencing a rebound in demand, and saw a sharp rise in new order activity which increased by 24.8% in the first nine months of 2021 (ending Sept. 30), reaching SEK34.0 billion, from SEK27.3 billion for the same period in 2020. Epiroc showed resilience to the COVID-19 pandemic and, despite an 11.6% drop in top-line to SEK36.1 billion in 2020 from SEK40.8 billion in 2019, the company defended its profitability with the S&P Global Ratings-adjusted EBITDA margin reaching 25.2%, compared with 24.4% in 2019. For 2021-2022 we expect its EBITDA margin will be in the range of 25.0%-26.0%, supported by increasing volumes....

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