ABB Now a Hold

Visibility for Asea Brown Boveri (ABB) for the remainder of 2009 remains limited. Significant uncertainty remains surrounding the key demand drivers for the company’s products and systems. The business environment in March improved, but it is too early to say whether this indicates that the worst is over.

In addition, the year-on-year comparison of results in the second quarter of 2009 will be particularly challenging because of the very high levels of growth and earnings reported in the prior-year period.

The need for power transmission infrastructure in all regions – both equipment replacement and new transmission projects – has not changed in recent quarters. However, the cost and scarcity of project funding have delayed many power investment decisions, and ABB is unable to precisely forecast when the various government stimulus programs will have an impact or when the availability of funding will improve.

In the recent past, ABB has been able to get a number of orders of value around $30-$50 million, which suggests that stimulus orders are starting to pour in. Demand in ABB’s industrial end markets depends to a large extent on GDP growth and capital spending, together with commodity prices. Its customers need to steadily improve efficiency and productivity to meet increasing competition, which are a source of orders and revenues, along with the latent demand in construction and general industry.
 
ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. The ABB Group of companies operates in around 100 countries and employs about 120,000 people. ABB is a specialist in power products, power systems, automation products, process automation and industrial robotics. Prime competitors are Siemens (SI) and Areva.

We have upgraded ABB to a Hold on the pick-up in order volume in recent times and have adjusted our target price to reflect the current market environment.

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