Sandvik provides proforma numbers for Machining and Intelligent Manufacturing

Sandvik announced an updated Group structure effective January 1, 2026 and published proforma 2025 figures for the two new business areas. Machining reported 2025 order intake of 45,137 MSEK, revenues of 44,003 MSEK and adjusted EBITA of 8,700 MSEK (adjusted EBITA margin 19.8%); Intelligent Manufacturing reported order intake of 3,279 MSEK, revenues of 3,117 MSEK and adjusted EBITA of 686 MSEK (margin 22.0%). The release highlights NWC ratios (Machining ~30.6% R12; Intelligent Manufacturing -22.5% R12), headcount splits and a ~1 percentage point negative impact from an ongoing SaaS conversion on Intelligent Manufacturing’s full-year growth. These proforma numbers should help investors assess operating performance and capital efficiency following the separation.

Analysis

Market structure: The split creates two clearer investable franchises — Machining (SAND.ST) with ~19.8% proforma EBITA margin and 12.7% R12 ROCE, and Intelligent Manufacturing with a 22.0% margin and improving ROCE (10.7% ex-amortization). Winners: Sandvik equity (and suppliers of high-value cutting tools and industrial software) as separation typically re-rates high-margin, software-adjacent units; losers: low-cost tooling peers and OEMs exposed to cyclical capex cuts. Strong Q4 organic order intake (+15% Machining, +16% Intelligent) signals demand recovery in precision manufacturing and a positive pricing environment for differentiated products.

Risk assessment: Tail risks include a deep industrial capex downturn (20%+ decline in global manufacturing capex within 12 months) that would roll through order books, and SaaS execution failure that prolongs the stated ~1ppt 2025 drag into multi-year revenue underperformance. In the next 1–3 months expect volatility around Q1 results and separation details; 3–12 months the main risks are divestiture costs (items affecting comparability were -734 MSEK Machining YTD) and FX/SEK moves that can compress reported growth. Hidden dependency: Intelligent Manufacturing’s negative NWC (~-22.5% R12) implies subscription cash conversion; disruption to billing cycles would be magnified.

Trade implications: Primary actionable: establish a 2–3% portfolio long in SAND.ST targeting +15–25% upside over 6–12 months driven by multiple expansion post-separation; match with a 1:1 short in KMT (Kennametal, NYSE:KMT) to isolate Sandvik-specific re-rating. Options: buy a 6–9 month SAND.SE (or SAND.ST listed options) call spread (debit) to cap cost, or sell 3-month covered calls on existing SAND exposure if volatility compresses after positive separation announcements. Rotate sector exposure toward industrial automation/software and reduce exposure to commodity-heavy mining-equipment names by ~2–4%.

Contrarian angles: The market may underprice the long-term ARR lift from SaaS conversion — a 3–5ppt margin tailwind over 2–4 years if ARR >30% of Intelligent Manufacturing revenues materially raises valuation multiples. Conversely, investors often miss the short-term accounting pain: a >10% intraday selloff on a negative SaaS update should be treated as a tactical buy if net working capital and cash flow remain stable. Historical precedent: ABB’s carve-outs re-rated once investors could value software/automation separately; an activist or secondary split could further unlock value but also create one-off costs that compress near-term EPS.

Key Decisions for Investors

• Establish a 2–3% net long position in Sandvik (SAND.ST) within 1 month, target +15–25% total return over 6–12 months; set stop-loss at -12% from entry and trim if SAND outperforms sector by >20% in 3 months.
• Implement a pair trade: long SAND.ST (size A) and short Kennametal (KMT) (size A) to isolate re-rating; expect relative outperformance of +10–15% in 6–9 months if separation is well received — exit if KMT outperforms SAND by >8% in 60 days.
• Buy a 6–9 month SAND call spread (e.g., buy 10% OTM, sell 30% OTM) sized to cap premium to ~0.5–1.0% portfolio to capture positive earnings/separation catalysts while limiting downside.
• Reduce exposure by 2–4% to commodity-heavy industrials (e.g., heavy mining OEMs) and redeploy into industrial automation and software names (e.g., FANUC, SIEMENS DIGITAL) over the next 3 months as demand indicators (PMI, capex intentions) confirm recovery.
• If SAND falls >10% on separation/divestiture costs news, add incrementally up to a total 4–5% position provided Q/Q free cash flow remains positive and net debt/EBITDA remains within 3.0x; reassess after next quarterly report.