Sandvik AB

The stable outlook reflects our expectation that credit ratios will remain commensurate with the rating in the next 24 months, supported by an EBITDA margin in excess of 18% even at the bottom of the cycle, and management's commitment to keep low leverage. We therefore expect management will adjust acquisitions and shareholder returns as appropriate to maintain the group's adjusted debt to EBITDA below 1.5x 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

... its financial flexibility despite earnings and FOCF growth. We anticipate the company will spend another SEK13 billion-SEK15 billion for new businesses this year after record purchases of SEK29 billion in 2021, on a cash and debt-free enterprise value basis. We project this, together with dividends of about SEK6 billion (SEK4.75 per share), will result in an increase in our S&P Global Ratings-adjusted debt to SEK30 billion-SEK32 billion in 2022. Last year, the elevated M&A budget and SEK8.1 billion of total dividends were only partly compensated by robust FOCF of SEK9.6 billion (negatively impacted by high working capital requirements of SEK3.7 billion). This resulted in a re-leveraging of Sandvik's balance sheet, with its S&P Global Ratings-adjusted debt increasing to SEK23.6 billion from a net cash position in 2020. However, we estimate sustained organic and inorganic EBITDA growth will help the group retain its adjusted funds from operations...

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