The ROBO index of worldwide 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 international equities as of 24 August 2022.
This transfer is essentially 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, consistent 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 corporations within the ROBO index to deal with rising prices and provide chain challenges.
Earnings season introduced document excessive orders and prolonged backlogs
The summer season 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 financial system, together with housing and automotive. Nonetheless, it has additionally introduced continued optimistic information round demand for manufacturing facility and warehouse automation, with record-high quarterly orders and prolonged backlogs offering good visibility into the remainder of the yr. Mixture gross sales progress for ROBO index members is ready to succeed in 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 large foreign money headwinds, with the US greenback index now up 13% YTD.
How do Robotics & Automation corporations fare in inflationary instances?
Whereas inflation is operating at multi-decade highs, we all know that in prior durations of rising uncooked materials prices, automation corporations have carried out comparatively nicely. Know-how and market leaders have demonstrated the flexibility to cross on rising prices to prospects.
As well as, inflation seems to be primarily attributable to a constrained provide aspect – suppose provide chain challenges and shortages, together with labor shortages. Automation tends to be the brief reply to those issues. This case has led enterprise leaders world wide to prioritize automation tasks, as mirrored within the inflated order books of many ROBO index members. That is additionally mirrored within the whopping 21% improve 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 corporations have remained enticing 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 not too long ago, 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
Larger charges are more likely to be a big problem for long-duration equities, sometimes 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 simply gained’t discover a lot of that in ROBO. The overwhelming majority of ROBO index members function confirmed, worthwhile enterprise fashions with robust stability sheets. You have a look at ROBO via the normal funding issue prism and also you see a pronounced tilt to high quality. Greater than 50% of holdings have a optimistic web money place.
ROBO does embrace a small variety of very high-growth corporations, comparable 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 higher than 10x.
Numerous low cost shares in ROBO
ROBO additionally consists of many sluggish and regular compounders, working in additional mature segments of the market comparable to manufacturing facility automation and equipment, which can be buying and selling on very low multiples. In truth, 10 out of 82 ROBO members commerce on EV/gross sales decrease than 1x. Corporations like iRobot, THK, GXO Logistics, Fuji Machine, KION, Cargotec, Krones, and Duerr. From a value/earnings perspective, 6 corporations are buying and selling on a single-digit ahead PE.
Underweight Europe / chubby Asia
We observe that ROBO is underweight Europe and chubby Asia in contrast with a typical international fairness allocation. Japanese corporations particularly account for 22% of the portfolio, with most of the world’s main manufacturing facility automation tools and part producers primarily based within the nation and serving international markets. We count on their export enterprise to thrive with the JPY having not too long ago declined to a 20-year low relative to the USD.
To this point this yr, 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 currency at 12%, together with CHF, GBP, SEK, and CAD.
1 All Information as of August twenty fourth, 2022. Supply:ROBO World®, S&P CapitalIQ