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Investing.com -- Deutsche Bank upgraded bearing manufacturer SKF (ST:SKFb) to “buy” from “hold” and raised its target price to SEK280 from SEK240, citing expected value creation from the planned separation of the company’s Automotive division.
Analyst John Kim said that Deutsche Bank continues to view the spin-off as a “value unlock” for the bearings maker, noting that the bank expects the Industrial division to trade at about 12x and the Automotive unit at about 7x, in line with their peer groups.
Kim said the separation could add roughly 30% upside from current share price levels, driven by a re-rating of about 90% of the group’s earnings base and a de-rating of the remaining 10%.
Kim added that SKF remains a short-cycle business with limited visibility, but he said the bank now sees the reward outweighing the risks, with restructuring and separation costs already known.
He also said that volumes appear to have largely bottomed out and that price and mix remain generally supportive, while lead indicators are mixed between positive and neutral.
Deutsche Bank said the note reviews division positioning and financial targets outlined at the company’s capital markets day, and that it has updated forecasts and revised its valuation method.