Vår syn på Saab – stor uppsida, begränsad nedsida

Our take on Saab – big upside, limited downside

In the last five years, the development of Saab's share price relative to the Swedish stock exchange has been strong. The course has primarily been driven by better sales prospects and hopes that international contracts will improve the company's profitability. However, Saab has had difficulty converting increased sales into cash flow. This, in combination with the fact that large investments were required and will be required to gain ground internationally, meant that the company carried out a targeted share issue as recently as last October. The issue added approximately SEK 6 billion to the company.

Saab's share price has yo-yoed on the stock market for the past three years and is around 35 percent below the top price of SEK 446 that was noted in October last year - before the issue was announced. The stock currently makes up 4.7 percent of the portfolio in the Global Security Fund.

What we think looks interesting

Saab has a unique position on the Swedish market, with a near monopoly-like position. 40 percent of the company's revenue comes from Sweden.
There is much debate about the potential for the Swedish defense budget and the increase it is expected to have until 2025. Analysts estimate that the increase could be as large as 70 percent until 2025 – an annual increase of 9.2 percent.
An increased Swedish defense budget means that Saab has a high probability of increasing its organic growth.
Opportunities to obtain new international contracts have been strengthened with the order won from the US Air Force for the TX training aircraft together with Boeing during the past year.
The stock has performed significantly worse over the past five-year period compared to American industry peers Lockheed Martin and Boeing, especially if the weaker krona is taken into account. This despite the fact that a stronger sales trend was noted.

Is Saab a good investment?

We believe that Saab looks interesting from a risk/return perspective. The key to future price increases lies in how well you succeed in attracting international orders, which, all else being equal, means higher margins.

Analysts see a justified price of SEK 390, which we think is somewhat high. Various fundamental valuations show the stock may have an upside of 10-20 percent from today's levels. If the company can profit from continued strong growth and rising profitability, the justified value is higher.


Image: Copyright Saab AB, Saab @Linus Svensson