Raising Fair Value on SKF on Demand Recovery and Structurally Lower Long-Term Costs

We increase our fair value estimate for narrow moat SKF to SEK 210 per share from SEK 175 per share, factoring in a sharper than previously expected recovery in SKF's markets, the beginning of which was demonstrated with first-quarter results. We also bring our midcycle operating income margin assumption to 14%. We assume a permanently lower cost structure going forward by 200 basis points from our previous assumption and in line with management's long-term goal. SKF is executing a multi-year cost reduction program, which includes increased usage of automation. As a result, the number of employees is down more than 6% since 2015. This has supported an increasing annual revenue per employee. By 2022, when we expect a full recovery to the company's prepandemic revenue levels, we forecast revenue/employee to be 20% above 2015 levels.