Wednesday, 22 January 2014

ABB - tripped up by the weather

As a global thematic investor, one of the best corporate website pages is this one from the Swiss-Swedish engineering and power company ABB.  Energy efficiency, renewables, innovation, Davos thought, science news...there is so much good content.  And that is ABB in a nutshell a company whose CEO proudly announced to the Davos fraternity earlier today that 50% of their business is linked to clean energy and clean technology. Their corporate strap-line is 'power and productivity for a better world', a business aim few could argue against. 

The real world though is always grubbier and subject to a myriad of other influences.  Today's quarterly update from the company was surprisingly upfront about some of the recent challenges:

'ABB fourth-quarter earnings adversely impacted by Power Systems division'

Digging a bit deeper, the divisional issues were due to...that desperately old theme of the weather:

 'delays to offshore wind projects caused by severe winter storms in the North Sea in December and some operational issues which are being addressed with the enhanced realignment program'. 

And the hit?  A cool US$260m or about a quarter of the estimated Q4 earnings.  No wonder the shares are down about 4% in Swiss trading today:

Full details will be released in mid-February with the company's formal Q4/FY numbers disclosure. 

With thematic strong companies, especially those with a strong balance sheet and order book like ABB (plus a 2.7%+ yield) it is generally best to embrace volatility.  Back in July, ABB had another issue as I wrote up back then:

'Timing – the age old scourge of the large infrastructure-style company – is being blamed.  Judging by the chart below it does not really look austerity-linked (indeed many governments have been prioritising infrastructure investments).  Things are just taking longer.  This is the nature of the world today'. 

Using the Swiss quote, the shares fell briefly below CHF20 a few weeks after this update...and then moved up - in better markets - over 20%. CHF20 is still a clear buy level but I am looking to kick off a starter position at CHF22 which has been both a resistance and support point over the last year (as shown above). 

And the equivalent level for the US quote?  Below US$25 and each new US$2 down...

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