Downgrade for Boliden and Sandvik Shares

Shares of Swedish industrial giants Boliden and Sandvik fell after UBS analysts downgraded both companies, citing company-specific headwinds and broader sector challenges.

Boliden's Situation

Boliden, a major player in mining, experienced a stock dip after being re-rated to “sell” from “neutral.” This downgrade follows a recent 20% increase in Boliden's shares, primarily driven by positive sentiment in industrial metals, particularly due to China’s stimulus announcements. UBS analysts view this surge as a moment to reassess the vulnerabilities of the stock.

Several risks for Boliden were identified as it heads into 2025:
– Decline in metal grades at key mines, including Aitik and Garpenberg
– Uncertainty at the Kevitsa site
– Lower treatment and refining charges in smelting operations
– Potential capital expenditure overruns

Furthermore, UBS raised concerns about Boliden’s possible acquisition plans (such as interest in Lundin's Zinkgruvan and Neves Corvo), which might stretch the balance sheet and require equity financing. As a result, UBS cut Boliden’s target price to SEK 300 per share, down from a current price of around SEK 341.

Sandvik's Challenges

Meanwhile, Sandvik faced similar downgrades, with UBS adjusting its rating to “sell” from “neutral” and lowering its target price to SEK 200 per share. The main issue for Sandvik is in its short-cycle business, notably the metal cutting division, which is experiencing underperformance and ongoing structural challenges.

UBS analysts highlighted weak demand indicators for Sandvik, including a sharp decline in the short-cycle weighted indicator to 0.89 in September, well below the neutral mark of 1.0. This decline indicates upcoming volume headwinds, exacerbated by increasing competition from Chinese manufacturers and Sandvik's significant exposure to the sluggish European market.

Concerns were also raised about Sandvik’s exposure to the automotive industry, which is shifting towards electric vehicles, necessitating fewer metal cutting tools. These factors contributed to UBS revising its earnings estimates for Sandvik for 2024 and 2025, expecting a 10% decrease in diluted EPS for 2024 to SEK 10.94 (from a previous estimate of SEK 12.11) and a 17% reduction for 2025, now forecasted at SEK 11.55 compared to a prior estimate of SEK 13.91.