On Wednesday, Deutsche Bank (ETR:DBKGn) lowered its rating for SKF AB (OTC:SKFRY), a prominent bearings manufacturer, from "Hold" to "Sell," while also reducing the shares target from SEK 208.00 to SEK 182.00. The bank's decision reflects concerns over the company's volume growth and pricing challenges as it moves into the second half of the year.
The analyst from Deutsche Bank noted that SKF AB is likely to face a tougher comparison in terms of pricing, though it may see an easier comparison on volume. Despite this, the underlying volume trends for SKF AB are either flat or declining. The firm anticipates less benefit from price inflation and cost development in the upcoming quarters.
Additionally, the analyst pointed out that Purchasing Managers' Indexes (PMIs) are on a downward trend, which could affect SKF AB's volume exposure and make growth challenging due to the current demand dynamics. SKF AB has been transitioning its production to newer, more efficient facilities, but the full impact of this move is not expected to be reflected in the fiscal year 2024 margins due to volume considerations.
The bank also expects the positive cost developments that SKF AB has been experiencing to diminish over time. Lead indicators and inputs such as PMIs, pricing, and logistics/freight are either mixed or trending negatively. Consequently, cost development is projected to be marginally negative in the second half of the year compared to the first half.
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