Sandvik AB

The stable outlook reflects our expectation of strong credit ratios, supported by an EBITDA margin in excess of 18% even at the bottom of the cycle, and management's commitment to maintain very low debt in absolute terms. We therefore expect management will adjust acquisitions and shareholder returns as appropriate to maintain the group's adjusted debt to EBITDA below 1.0x through the cycle. Negative rating pressure could emerge if the company's credit ratios were to weaken, with FFO to debt nearing 60% and debt to EBITDA progressively increasing toward 1.5x. This scenario could unfold in the case of excessive shareholder distributions or material debt-funded acquisitions, or if very adverse market conditions were coupled with higher competitive pressure. We see limited rating

...Sandvik's operating performance will soften in 2020, owing to impact from the ongoing COVID-19 pandemic, resulting in lower demand and weaker margins, with material recovery expected only in 2021. We expect Sandvik's operating performance to deteriorate in 2020, as the coronavirus outbreak affects demand for the company's products more so in its cyclical end markets, such as automotive, general engineering, and energy. In the first quarter of 2020 itself, the company's sales decreased by 5.6%, and order intake also fell by 9%, compared with the same period in 2019. In our view, lower demand is likely to weigh on Sandvik's profitability, with the adjusted EBITDA margin shrinking to 18.5% in 2020 from 25% in 2019. We expect the company's aftermarket services exposure (60% of Sandvik Mining and Rock Technology revenue in 2019) to provide some cushion to margins, alongside the steps Sandvik has taken to conserve profitability, such as reduced hours for some employees, expected to result in...

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