Posts Tagged ‘power’

ABB : Switzerlands Sleeping Giant

abb1Swiss power & automation specialist ABB is moving from strength to strength with the recent announcement of a €550m contract which integrates with a green power project in Ireland. Irish system operator Eirgrid, has ordered a transmission system using HVDC Light (high-voltage direct current), an ABB technology with environmental benefits that include neutral electromagnetic fields, oil-free cables, low electrical losses, and compact converter stations. The solution will allow Ireland to expand wind power generation & via the new link, will enable it to import power from the UK as needed & to export power when it generates a surplus.

“We are delighted to partner Eirgrid for this project,” said Peter Leupp, head of ABB’s Power Systems division. “ABB’s HVDC Light technology will enhance the stability of both the Irish and U.K transmission grids, and also expand capacity for the use of renewable power.”

For those not in the know, ABB Ltd, is a global leader in power and automation technologies, enabling customers to improve performance while lowering potential environmental impact. The company has operations in 87 countries globally & currently carries a workforce of approximately 110,000 employees, delivering complex power projects into logistics, energy, industry & utility sectors.

This is just the latest in a string of deals that ABB (NYSE : ABB) has managed to pull together in the face of the turmoil in global markets. Looking at ABB’s press release pages, it is apparent that the company has capitalised on its almost unique position as a global player in its field. In 2009 alone, ABB has so far announced in the region of $2.3bn in new contracts, a strong performance in these troubled times. Referring to ABBs annual report (a weighty 7.4Mb file) from 2008, revenues rose 20 percent to a record $34.9bn as the company continued to drive growth & also managed to deliver on its strong order backlog, more on that later. Earnings before interest and taxes (EBIT) reached $4.6bn, with the company recording it’s second highest net income statement in its history, even after provisions taken in the fourth quarter, which saw the order book drop by 60% on 2007 Q4 earnings. Admirable stuff. Even more admirable is the fact that ABB exited 2008 with an order backlog in the region of $24bn, which is a huge cushion to take it through the troubled waters of 2009.

ABB is not however resting on its laurels, under the new management team of CEO Joe Hogan (recent head of GE’s Healthcare division), has reacted to the global shift, as ABB business is pretty much tied to GDP of the countries it operates in, Hogan has instigated a cost reduction plan that should pair costs by as much as $1.3Bn per annum. The company has recognised that its orders are down in Europe, as industrial & construction demand has dramatically slowed. Also in Asia, ABB has suffered, mainly due to the fact that the explosive growth in the region in 2007 could not be offset in 2008.

One area that I am sure ABB will be focusing on is Emerging Markets, which will need to continue expanding their power grids for years to come, while mature economies in North America and Europe will only look to smaller upgrades to legacy platforms. This can already be seen in recent wins in Mozambique, Kuwait, Oman, Saudi & South Africa. The company is also looking into how it may capitalise on the fact that countries must tackle climate change, if they are to continue to grow their GDP & satisfy growing consumer demand for greener technologies.

I feel that ABB is under recognised by the markets & looking at the ADR’s performance against the criteria above, can only come to the conclusion that it is severely undervalued at todays price of $13.50, having reached a 52 week low of $9.11. Past shrewd management of assets, coupled with a typically Swiss style of quietly acquiring smaller companies to either subsume competition or add to its technology base make ABB a winner for me. To that end, I instigated a buy on the ADR yesterday & am setting a target price of $25 by Q3 of 2009. I am also of the opinion that ABB will profit from some of the new energy projects that have been announced & which I have previously commented upon on MyStockVoice, particularly in the Brazilian Petrobras (NYSE : PBR) & the West African Total (NYSE : TOT) projects.