Epiroc Earnings: Impressive Revenue Growth Driven by Backlog Execution

Narrow-moat Epiroc delivered a strong second quarter, reporting 34% revenue growth (half of which was organic). The main drivers of its impressive top-line growth were the execution of its equipment backlog at higher prices and healthy demand for aftermarket services, particularly large rebuilds of customer equipment. While order intake grew 15% to a record-high SEK 15.4 billion, growth was entirely driven by acquisitions and favorable currency movements, whereas organic order intake declined 1% year over year and 2% sequentially. Declines in order intake and the book/bill ratio, which has fallen below 1 times, are likely indications that the impressive revenue growth achieved during the second quarter is unlikely to persist. However, robust demand for Epiroc's higher-margin service business will help mitigate cyclicality and ensure that its superior operating metrics persist. We maintain our SEK 156 fair value estimate and view the shares as overvalued.