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Exploring The Present State of The ROBO Index


The ROBO index of world know-how and market leaders in robotics & automation is up 12%1 from its 2022 low, after an unprecedented 38% drawdown from its all-time excessive reached in November 2021. Within the historical past of the ROBO index, peak-to-bottom drawdowns had ranged from 37% within the COVID-lockdown panic to 33% within the 2018 trade-war industrial recession and 27% within the 2015 power bust. In the meantime, ROBO has delivered a ten.5% CAGR since its inception 9 years in the past in August 2013, in comparison with 7.9% for world equities as of 24 August 2022.

This transfer is basically pushed by a number of contractions versus a deterioration within the earnings outlook. The decline from the 2021 excessive represents a 31% contraction within the combination ahead PE, from 36x in February 2021 to 25x as of right now, in keeping with the historic common of 24x over the 9 years since inception.

Within the meantime, ahead gross sales estimates have elevated by 3% over the previous 12 months, and earnings estimates have decreased by 4%. This displays the continued energy of demand for automation know-how and options and the flexibility of firms within the ROBO index to deal with rising prices and provide chain challenges.

Earnings season introduced report excessive orders and prolonged backlogs

The summer time earnings season has introduced renewed considerations about supply-chain disruptions, the specter of a recession in Europe, and an abrupt decline in early-cycle sectors of the US economic system, together with housing and automotive. Nonetheless, it has additionally introduced continued constructive information round demand for manufacturing unit and warehouse automation, with record-high quarterly orders and prolonged backlogs offering good visibility into the remainder of the 12 months. Mixture gross sales progress for ROBO index members is ready to achieve 13% in 2022, pushed by Sensing, Computing/AI, Meals & Agriculture, and Actuation. That is considerably larger than the 8% common gross sales progress over the previous 9 years, and the 8% anticipated income progress for the S&P500 excluding Vitality. And that is regardless of huge forex headwinds, with the US greenback index now up 13% YTD.

How do Robotics & Automation firms fare in inflationary occasions?

Whereas inflation is operating at multi-decade highs, we all know that in prior durations of rising uncooked materials prices, automation firms have carried out comparatively properly. Expertise and market leaders have demonstrated the flexibility to cross on rising prices to prospects.

As well as, inflation seems to be primarily on account of a constrained provide facet – assume provide chain challenges and shortages, together with labor shortages. Automation tends to be the quick reply to those issues. This case has led enterprise leaders all over the world to prioritize automation tasks, as mirrored within the inflated order books of many ROBO index members. That is additionally mirrored within the whopping 21% enhance in capital expenditures anticipated for the S&P 500 ex-Vitality index in 2022, which might mark the most important hole between income/earnings progress and capex in a long time, based on Empirical Analysis.

Engaging acquisition targets

Regardless of uncertainty in monetary markets, robotics and automation firms have remained engaging acquisition targets, and two ROBO index members agreed to be acquired in 2022: Vocera, a number one supplier of automation options within the healthcare business (Stryker), and, most lately, iRobot, the worldwide chief in robotic vacuum cleaners (Amazon). Because the inception of the ROBO index in 2013, there have been 28 takeover makes an attempt on index members, together with these two in 2022, six in 2021, and 5 in 2020.

Few long-duration shares in ROBO

Increased charges are more likely to be a major problem for long-duration equities, usually high-growth shares with earnings expectations far out sooner or later. Lengthy-duration equities wrestle most in higher-rate environments. The excellent news is that you just received’t discover a lot of that in ROBO. The overwhelming majority of ROBO index members function confirmed, worthwhile enterprise fashions with sturdy stability sheets. You take a look at ROBO by means of the normal funding issue prism and also you see a pronounced tilt to high quality. Greater than 50% of holdings have a constructive web money place. 

 

ROBO does embrace a small variety of very high-growth firms, similar to AutoStore, Luminar, iFlyTek, Nvidia, iRhythm and ServiceNow, that are buying and selling on comparatively excessive multiples. In truth, 8 out of ROBO’s 82 constituents commerce on an EV/gross sales a number of better than 10x. 

A number of low-cost shares in ROBO 

ROBO additionally consists of many gradual and regular compounders, working in additional mature segments of the market similar to manufacturing unit automation and equipment, which might be buying and selling on very low multiples. In truth, 10 out of 82 ROBO members commerce on EV/gross sales decrease than 1x. Firms like iRobot, THK, GXO Logistics, Fuji Machine, KION, Cargotec, Krones, and Duerr. From a value/earnings perspective, 6 firms are buying and selling on a single-digit ahead PE.

Underweight Europe / obese Asia

We observe that ROBO is underweight Europe and obese Asia in contrast with a typical world fairness allocation. Japanese firms particularly account for 22% of the portfolio, with lots of the world’s main manufacturing unit automation gear and element producers based mostly within the nation and serving world markets. We anticipate their export enterprise to thrive with the JPY having lately declined to a 20-year low relative to the USD.

Up to now this 12 months, the rise within the US greenback has represented a 5.1ppt headwind, with a JPY publicity of 21%, EUR at 10%, TWD at 6%, and different foreign exchange at 12%, together with CHF, GBP, SEK, and CAD.

 

 

 

1 All Information as of August twenty fourth, 2022. Supply:ROBO World®, S&P CapitalIQ



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