Investing.com -- Shares of Swedish industrial giants Boliden (ST:BOL) and Sandvik (ST:SAND) were down after UBS analysts downgraded both companies, citing company-specific headwinds and sector-wide challenges.
Boliden, a major player in mining, saw its stock dip following a revised rating to “sell” from “neutral.”
The downgrade comes after a recent 20% rise in Boliden's shares, which had been buoyed by improving industrial metals sentiment, especially driven by China’s stimulus announcements.
However, UBS analysts argue that this surge is an opportune moment to revisit the stock's vulnerabilities.
UBS identified several risks for Boliden going into 2025, primarily the decline in metal grades at key mines such as Aitik and Garpenberg, as well as uncertainty at the Kevitsa site.
Additionally, lower treatment and refining charges in its smelting operations, combined with potential capital expenditure overruns, paint a bleak outlook.
UBS also raised concerns about Boliden’s possible acquisition plans, such as its interest in Lundin's Zinkgruvan and Neves Corvo, which may lead to a stretched balance sheet and could necessitate equity financing.
In light of these risks, UBS slashed Boliden’s target price to SEK 300 per share from its current price of around SEK 341.
Meanwhile, Sandvik faced similar pressure after UBS downgraded its rating to “sell” from “neutral,” reducing its price target to SEK 200 per share.
The key issue for Sandvik lies in its short-cycle business, particularly the metal cutting division, which is underperforming and struggling with structural challenges.
UBS analysts pointed to weak demand indicators, including a sharp drop in Sandvik’s short-cycle weighted indicator to 0.89 in September, far below the neutral 1.0 mark.
This reflects upcoming volume headwinds, compounded by rising competition from Chinese manufacturers and Sandvik's heavy exposure to the slow-growing European market.
UBS flagged Sandvik’s exposure to the automotive industry, which is transitioning to electric vehicles, a shift that requires fewer metal cutting tools, further dampening prospects for the company.
UBS analysts have reduced their earnings estimates for Sandvik in 2024 and 2025, citing worsening macroeconomic indicators and structural challenges in the company's short-cycle business.
The revised forecast sees Sandvik's diluted EPS for 2024 dropping by 10% to SEK 10.94, down from a previous estimate of SEK 12.11.
For 2025, the EPS estimate has been cut by 17%, now projected at SEK 11.55 compared to the prior figure of SEK 13.91.