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Strategies & Market Trends : Speculating in Takeover Targets
CTG 7.075-2.5%3:59 PM EST

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From: richardred11/4/2011 12:48:33 PM
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UPDATE 3-ABB sets upbeat targets, eyes M&A

By Caroline Copley

ZURICH, Nov 4 (Reuters) - Swiss engineering group ABB set out upbeat sales and margin targets and said it would look to plug gaps in its portfolio through further buys, as it seeks to offset an economic slowdown and growing price pressure.

ABB, which makes products used by oil, mining and utility companies, is banking on higher demand for green technology as governments replace ageing power networks and high oil prices make power-saving technologies more attractive.

For the period 2011-2015, the company set itself a new average annual sales growth target of between 7 and 10 percent, aiming to outpace economic and market growth and downplayed talk of a recession.

"We don't expect a deep recession, only a slowdown for the next 12-18 months," Chief Financial Officer Michael Demare told a news conference in Zurich ahead of the group's investor day.

ABB also raised slightly its target for operational earnings before interest taxes depreciation and amortisation (EBITDA) margin to a corridor of 13-19 percent.

Analysts said the targets were ambitious in the current economic environment.

"(These are) rather ambitious targets, even accounting for the solid 2011 financial year base," Vontobel analyst Panagiotis Spiliopoulos said. "We reckon that ABB could reach EPS of more than $2 by 2015, providing considerable upside."

"The explicit EPS target leaves room for buybacks if no appropriate M&A targets are available," Vontobel also said.

Chief Financial Officer Michael Demare said the group would consider buybacks only if it couldn't find appropriate acquisition targets and dividend payment.

Shares in ABB, which have fallen some 20 percent this year, rose 0.6 percent by 1214 GMT, outperforming a 0.5 percent weaker European Industrial Goods and Services sector .

ON THE PROWL FOR M&A

These are the first new targets issued under Chief Executive Joe Hogan since he took over the helm in 2008. Under his leadership the group returned to the M&A market after a lengthy absence, buying industrial motor firm Baldor Electric for $4.2 billion last year, among other deals.

ABB, which had net cash of some $1 billion at the end of the third quarter, is on the prowl for more buys, which could potentially add another 3-4 percent to its overall growth rate. But Hogan ruled out emptying its war chest for one single target.

"In our sector there are not so many big deals that make sense or can happen," Hogan told a media briefing in Zurich ahead of the group's investor day. "It's much more likely we'll do deals the size of Baldor or smaller than Baldor."

Hogan said the group still had gaps in the United States and in the market for Programmable Logic Controllers (PLC) -- small equipment control devices.

Facing growing competition from local suppliers in China and India, ABB is also looking to branch out into offering service and software packages rather than just standalone products to help increase market share.

Earlier this year the group bought Australian software firm Mincom, having previously spent more than $1 billion on U.S. software firm Ventyx.

Rival Schneider Electric has also stocked up its software portfolio, buying energy software provider Telvent, as part of a push into energy efficient grids and emerging markets.

ABB said managing costs would remain key, as it faced ongoing price pressure, and it targeted some $1 billion in cost savings in 2012.

"We are still going to be confronted by price pressure -- it's a fact of life," Demare said.

The group is already three-quarters of the way to meeting its $1 billion cost saving target for 2011 which has helped offset pricing pressure for transformers and gas insulated switch gears. (Reporting by Caroline Copley; Editing by Hans-Juergen Peters and Jon Loades-Carter)

reuters.com
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