Interim report fourth quarter 2025

Sandvik reported solid fourth-quarter results with order intake of SEK 32,717m (SEK 31,562m) and revenues of SEK 32,461m (SEK 32,151m); at fixed exchange rates order intake rose 15% and revenue growth was 12%. Adjusted EBITA was SEK 6,373m (margin 19.6%), adjusted EBIT SEK 5,942m (margin 18.3%), adjusted profit before tax SEK 5,623m and adjusted profit for the period SEK 4,249m; diluted adjusted EPS was SEK 3.38. Free operating cash flow was strong at SEK 6,714m and the Board proposes a raised dividend of SEK 6.00 per share (5.75), signaling robust cash generation and capital return priorities.

Analysis

Market structure: Sandvik (SAND) shows healthy demand with order intake SEK 32.7bn (+15% fx-adjusted) and revenue growth +12% fx-adjusted, signaling continued end-market capex in mining, manufacturing and infrastructure. Winners are equipment/tooling suppliers (Sandvik, CAT, Komatsu) and premium tooling/service providers that convert strong backlog into high-margin aftermarket revenue; commodity-producers exposed to a cyclical downturn are relative losers if capex rebalances. Cross-asset: stronger cash flow and higher dividend guidance should tighten credit spreads for industrial issuers and modestly support SEK; commodities exposure is mixed — stronger tooling demand implies resilient metal fabrication but not necessarily higher raw-material prices.

Risk assessment: Tail risks include a sharp China slow‑down, rapid destocking converting orders into cancellations, or execution failures on digital/service rollouts that could compress margins by >200bps; regulatory/export controls on mining equipment would be a low-probability high-impact event. Near term (days-weeks) risk centers on guidance tone at the Jan 27 webcast; medium term (3–12 months) depends on backlog conversion and regional demand (China/NA/EM); long term (1–3 years) risks include automation/digital competition and cyclical downturns. Hidden dependencies: FX translation, warranty/aftermarket mix and working-capital swings can quickly turn strong EBITA into weaker free cash flow.

Trade implications: Primary trade — constructive on SAND: operational metrics support a 6–12 month total return upside (target ~+10–15%) and dividend lift. Pair trades: long SAND vs short ATCO-A or EPI-A for 6–12 months to capture relative aftermarket/margin resilience. Options: use a funded bull-call spread (buy 12-month 10% OTM call, sell 25% OTM call) to limit premium for a 0.5–1% portfolio allocation.

Contrarian angles: Consensus may underweight the quality of cash flow — free operating cash flow SEK 6.7bn and a raised dividend imply management confidence in cyclical resilience; the market could underprice optionality in digital/service upsell. Conversely, upside is capped if backlog conversion lags revenue by >300bps, so avoid full funded exposure; historical parallels (post-2016 capex rebounds) show mid-cycle margin compression before recovery, caution on timing is warranted.

Key Decisions for Investors

• Establish a 2–3% long position in Sandvik (SAND) equity within 48 hours ahead of the Jan 27 webcast; target 12%–15% upside over 6–12 months, set a hard stop-loss at -8% and add on pullbacks >6%.
• Initiate a 1.5% pair trade: long SAND vs short Atlas Copco (ATCO‑A) 1.0% notional for 6–12 months to capture relative margin and FCF resilience; rebalance if relative performance diverges >5%.
• Buy a funded bull-call spread on SAND sized 0.5–1.0% of portfolio: buy 12-month 10% OTM calls and sell 25% OTM calls to cap cost; exit if implied vol rises >30% or if management cuts organic growth guidance by >200bps.
• Rotate 3–5% of cyclical commodity-equity exposure (large cap miners) into industrial equipment makers (SAND, CAT) over 1–3 months; reverse allocation only if fx-adjusted order intake for SAND falls below +5% YoY or free operating cash flow declines >15% YoY.
• Monitor three near-term catalysts in the next 30 days: (1) Jan 27 webcast tone on backlog conversion and China demand, (2) FX guidance/hedge exposure, (3) any change in dividend/share‑buyback policy; reduce long exposure by half if any trigger is negative.