EFTA01385519.pdf

> Energy, Materials & Industrials Deutsche Bank G ABB — Gael de Bray, BUY, close CHF26.7, CHF29 tgt, 9% upside ■ ABB has a late cycle profile (60% of sales - skewed towards ABB's large orders ($m) hit a low in 2017 —we expect improvement process/hybrid industries). We expect the shares to track orders, rather than earnings in 2018. 8.000 • We foresee a rebound in orders from a trough in 2017. 2017 was a 7.000 I v'' rage transition year, with large orders falling to a ten-year low. Improved macro, 6,000 WHIM!' favourable financing conditions and ageing assets should provide a 5.000 supportive environment. 4,000 • IP growth has historically led capex growth by around one year, and 3,000 from unsustainably low levels we believe a rebound in heavy and process 2,000 industries is on the way. Previously-delayed, large projects in grid 1,000 connections are also expected to move forward in the US and Europe over the next few years 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e 20188 ■ Acquisitions should deliver benefits. The costs of the expensive Source: Deutsche Bank. ABB acquisitions of B&R and GE IS are now sunk, whereas the benefits of #2 positions in automation (behind Siemens) and electrification (behind ABB 12m fwd PIE relative to sector average — premium has eroded post- crisis Schneider) should be substantial. • ABB has market-leading offerings in areas such as robotics, EV fast 1.6 1.5 chargers, energy storage and smart grid offerings. R&D expenses have 1.4 increased by c.100bps since 2008, reinforcing the group's innovation 1.3 capabilities. 1.2 - • We expect re-rating relative to the sector. Given favourable conditions, 1.1 - 1.0 - ABB's former premium to the market should return after a hiatus since 2009. 0.9 - ABB currently trades on 18.4x 18E P/E. 0.8 • Catalysts: 4Q17 results on 08-Feb 0.7 - 0.6 Related DB Research: Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov ABB: Better late (cycle) than never (de Bray) Source: reaset Derische Bank Reaearelt European. Equity Focus -Jamartry 2011s CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086805 CONFIDENTIAL SDNY_GM_00232989 EFTA01385519