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

Pricing power along with cost flexibility thanks to the adoption of robotics and other automation has enabled to SKF to weather its mostly procyclical end markets. However, we estimate around 10% of its revenue is favoured by structural tailwinds. First, it has exposure to renewables through wind turbines and other "clean tech" end markets, which currently contribute around 9% of revenue. Second, it has an emerging connected services business, with contracts at less than 1% of revenue. However, the services offer a promising growth outlook and also welcome recurring revenue for SKF. Across capital goods companies, connected services have seen good customer takeup rights due to the productivity gains from preventative maintenance, and we expect the same for SKF's connected services.