ATCO-B.ST — mttssn research

HOLD

Conviction: MEDIUM

A quality cyclical at full throttle into the semis upcycle — record Q2 orders (+27% organic +26%, Vacuum Technique +60%), adjusted ROIC 23.0% and SEK 17.8bn economic profit on the company's own 8% WACC — but the price already capitalizes ~5.5% perpetual EP growth (~2.5x PEBV). Own the quality; at SEK 167 there is no margin of safety. HOLD.

Adj. ROIC

23.0%

WACC 8% → spread +15.0pp

Economic Profit

+SEK 17,814M

SEK 17.8bn on company's own 8% WACC; 15.0% of IC

FCF Yield

n/a

SEK 25.4bn LTM ≈ 93% of NOPAT

Price / Target

SEK 167 → SEK 180

+8% base; HOLD

Revenue (LTM)

SEK 169.9B

LTM 169.9bn; Q2 organic +8%, book-to-bill 1.13

EBIT Margin

20.3%

LTM EBIT 20.3%; Q2 adj 21.0%, PPA amort kept in opex

EV / IC

n/a

Enterprise value / invested capital

Net Debt

n/a

Net debt 14.6bn; ND/EBITDA 0.5 after 24.4bn dividend step-up

Thesis

Atlas Copco is the archetype quality industrial: four decentralised business areas built around an installed base whose service annuity is 38% of Group revenues (43% in Compressor Technique). Even in the 2025 trough — revenue -4.8% yoy, EBIT margin 20.3% vs 21.6% — adjusted ROIC held at 23.0% against the company's own disclosed 8.0% WACC, generating SEK 17.8bn of economic profit on our adjusted LTM.

The cycle has turned. Q2 2026 order intake was a record SEK 51.0bn (+27%, organic +26%) with Group book-to-bill at 1.13; Vacuum Technique orders rose 60% (organic +59%) on semiconductor capex, and gas/process compressors saw sharp growth from marine LNG and air separation. VT margin recovered to 21.0% (18.9). Note the frame: VT tracks the semis capex cycle, so this order surge is early-upcycle, not a new baseline — we rate the company through-cycle, not on the incoming peak.

Numbers are conservatively framed: we reject the company's EBITA add-back of ~SEK 2.75bn LTM acquisition amortization (a real cost of a 25-bolt-ons-per-year model) and normalize recurring restructuring, landing 1.4% below company-adjusted EBIT. The constraint is price, not quality: the market already pays for a large share of the recovery.

Valuation · reverse-DCF & scenarios

The EP frame is the right lens for a 23% ROIC business. Capitalizing adjusted NOPAT of SEK 27.3bn at the 8% WACC gives a no-growth EV of ~341bn against an actual EV of 828.9bn — the market value added of ~710bn implies roughly 5.5% perpetual economic-profit growth (equivalently ~2.5x price-to-economic-book-value of ~67/share). That is a demanding, though not irrational, hurdle for this franchise.

Base SEK 180: NOPAT/EP compound ~8% p.a. over 24 months on the record order book, with the implied-growth premium compressing modestly (~5.2%) — about +8% from 167.2. Bull SEK 210: the semis capex upcycle broadens, ~11% NOPAT growth and today's 5.5% implied growth held. Bear SEK 115: VT orders roll over as semiconductor capex digests, NOPAT flat and the premium de-rates to ~4% implied EP growth. Assumption flagged: all three scenarios keep WACC at the company-disclosed 8.0%.

Market-implied growth

+21.4%

NOPAT CAGR over 5y the EV already requires

No-growth value / share

SEK 83

50% of price; rest = priced-in growth

ROIC − WACC

+15.0 pp

ROIC 23.0% vs WACC 8.0% — positive = value creation

CAP (priced-in)

7.1 yrs

years of excess returns the price implies (fades to WACC)

The market pays today’s enterprise value for roughly 21.4% NOPAT growth over 5 years. The business earns 23% on capital against a 8% cost of capital (spread +15.0 pp); the no-growth value is SEK 83/share (50% of price), so the rest is priced-in growth.

Scenario	24m target	Impl. g	Upside	Prob.	Driver
Bull	SEK 210	≥22%	+26%	25%	Semis upcycle broadens; ~11% NOPAT growth, 5.5% implied EP growth held
Base	SEK 180	≥22%	+8%	55%	~8% EP compounding on record orders; implied growth compresses to ~5.2%
Bear	SEK 115	+10%	-31%	20%	VT orders roll over on semis digestion; de-rate to ~4% implied EP growth
Prob-weighted	SEK 174	—	+4%	100%	Scenario-weighted expected value

Sensitivity — fair value / share at WACC × growth

WACC \ g	0%	3%	5%	8%	10%	15%
6.50%	114	127	137	153	165	197
7.25%	96	107	115	127	137	162
8.00% (base)	83	92	98	108	116	136
8.75%	73	80	86	94	100	117
9.50%	65	71	76	83	88	102

Green = fair value above the current price of SEK 167.20. The reverse-DCF conclusion is dominated by WACC and growth — see the whole surface, not a single fair value.

Method & data. NOPAT SEK 27,304, invested capital and ROIC 23.0% are observed (adjustments.json); WACC 8.0% and terminal g 2.5% are assumptions. EV→equity uses net debt SEK 14,645. The model holds ROIC constant (no fade) over the explicit horizon; the CAP figure instead fades excess returns to WACC.

⤓ Download the full model (.xlsx) — formula-driven sheets; flex the blue input cells and the model cascades in Excel.

Key drivers

1. Semis-driven order book

Record Q2 orders SEK 51.0bn, Vacuum Technique +60% (organic +59%) on semiconductor demand; Group book-to-bill 1.13 points to accelerating 2H revenue.

2. Service annuity

Service is 38% of Group revenues on a vast installed base, growing in all four business areas and all regions — the through-cycle margin and ROIC stabilizer.

3. Compressor Technique quality

The core BA runs 24-25% EBIT margins and 74% segment ROCE — a structurally advantaged cash engine funding the bolt-on machine.

4. Self-funded M&A compounding

25+ acquisitions closed in 2025 at net debt/EBITDA 0.5; goodwill 46% of equity with no impairment — the bolt-on model keeps compounding invested capital at high incremental returns.

5. Margin recovery

Q2 adjusted operating margin 21.0% (20.4) with VT back to 21.0% from 18.9 — volume leverage on the order surge is still ahead of reported revenue.

Key risks

Full valuationThe price capitalizes ~5.5% perpetual EP growth (~2.5x PEBV); at that hurdle, execution merely as expected earns roughly the cost of equity — the discount is zero.
Semis capex cyclicalityVacuum Technique's +60% order print is the most cyclical line in the Group; a semiconductor capex digestion phase reverses it fastest — VT segment ROCE is 19%, far below CT's 74%.
Acquisition dilutionGroup ROCE fell 26%→24% and CT margin was diluted by recent deals; sustained cadence at fuller prices grinds the return spread down.
FX translation swingsSEK strength cost -15.2bn in translation OCI in 2025 and currency cut 1H-26 orders by 8%; a strong krona is a persistent reported-growth headwind.
Goodwill stockSEK 51.2bn goodwill (46% of equity) tested at the same 8% WACC we charge; a downturn plus rate pressure narrows impairment headroom in recently acquired units.

Conclusion

Atlas Copco is exactly what the quality-cyclical label means: a 23% ROIC, SEK 17.8bn economic-profit franchise entering a semis-driven order upswing. But at SEK 167.2 the market already pays ~2.5x economic book value and demands ~5.5% perpetual EP growth. We rate it HOLD, medium conviction; base target SEK 180 on the EP frame — own it, do not chase it.

We would upgrade toward the high-120s/low-130s, where the implied perpetual EP growth drops to roughly the level a through-cycle view of the service annuity alone can defend, and the semis-order cyclicality comes for free.

Footnote evidence & sources

Every adjustment traces to the cited note/page in the source filing — click to open it there. Annual report / 10-K: 📄 open · Latest interim: 📄 open

Adjustment / figure	Value	Source	Why mttssn treats it this way
Revenue FY2025 anchor	168,343	Consolidated income statement, p.104 📄 p.106	Audited FY2025 revenues; LTM anchor.
Operating profit FY2025 anchor	34,114	Consolidated income statement, p.104 📄 p.106	Audited FY2025 EBIT (includes 28 MSEK share of profit in associates).
Net income attributable FY2025	26,420	Consolidated income statement, p.104 📄 p.106	Profit attributable to owners of the parent — NCI (5) excluded, per methodology.
Revenues 1H 2026 / 1H 2025	85,514	Consolidated income statement (condensed), January-June 📄 p.10	1H columns used for the LTM roll: +85,514 (1H26), -83,940 (1H25).
Operating profit 1H 2026 / 1H 2025	17,510	Consolidated income statement (condensed), January-June 📄 p.10	LTM EBIT roll: +17,510 (1H26), -17,098 (1H25).
Net income attributable 1H 2026	13,318	Profit attributable to owners of the parent 📄 p.10	Attributable figure used, not consolidated 13,322 — NCI names must not inflate net_income_reported.
Items affecting comparability FY2025	-800	Note 3 Segment information, p.117 📄 p.119	Restructuring -384 (Vacuum) -314 (Industrial Technique) + share-related LTI provision -102 (Common Group). Restructuring recurred 2024+2025 -> normalized as ongoing cost, no addback; only the LTI mark-to-market is normalized.
Items affecting comparability Q2 2026 (LTI provision)	-206	Revenues, profits and returns 📄 p.4	Entirely a change in provision for share-related long-term incentive programs — share-price-driven remeasurement, added back in the LTM normalization (+390 pretax total with FY -102 and Q2-25 +82).
Acquisition-related amortization FY2025	2,592	Note 11 Intangible assets, p.128 — acquired intangibles columns 📄 p.130	Trademarks 214 + marketing/customer related 1,463 + technology/contract based 913 + product dev 2. Company's EBITA adds this back; we keep it in opex (real cost of serial acquisition strategy). LTM 2,750 incl. interim EBITA-to-OP gaps.
Goodwill carrying amount FY2025	51,240	Note 3 segment assets / Note 11, p.117 📄 p.119	Goodwill 51,240 = 46% of equity, mid-range of the 30-70% industrial sanity band; +5,074 acquired in 2025 across 25+ bolt-ons. Annual impairment test at 8% WACC passed with headroom.
Capitalized product development FY2025	1,322	Note 11, internally generated — Investments row 📄 p.130	Capitalization 1,322 vs amortization 937: cap rate ~20% of R&D spend, inside the 5-25% normal band — IFRS treatment accepted, no reversal (interim split unavailable).
Intangible impairment FY2025	172	Note 11, p.127 — impairment text 📄 p.129	172 MSEK (158 internally generated dev, incl. 76 discontinued projects; 14 acquired), recognized mainly in R&D expenses. NOT added back: 2024 saw 118 — small annual project write-offs are recurring for this R&D/acquisition machine, normalized in opex like restructuring. No goodwill impairment.
PPE impairment FY2025	79	Note 12 Property, plant and equipment, p.129 📄 p.131	Impairment charge 32+18+29 = 79 on buildings/machinery/CIP. NOT added back (recurring-in-character, 0.2% of EBIT). Segment-note total impairment 251 = 172 + 79 reconciles.
Effective tax rate FY2025	0.215	Note 8 Taxes, p.124 📄 p.126	FY 21.5%; LTM effective rate 21.8% (7,428 / 34,052) used for NOPAT.
Total equity 2026-06-30	106,506	Consolidated balance sheet (condensed) 📄 p.12	IC snapshot base; NCI 194 included (consolidated NOPAT vs consolidated IC).
Borrowings incl. lease liability 2026-06-30	35,858	Carrying value and fair value of borrowings 📄 p.12	Bonds 15,412 + other loans 12,870 + lease liability 7,576. IB debt in IC = 28,282 ex-lease (leases peripheral: offices/vehicles, ROU 3.5% of assets).
Lease liability 2026-06-30	7,576	Borrowings table 📄 p.12	Excluded from IC (lease_liabilities_in_ic = false); lease interest already below EBIT under IFRS 16, so no NOPAT adjustment either.
Cash and cash equivalents 2026-06-30	14,709	Consolidated balance sheet (condensed) 📄 p.12	Operational cash capped at 2% of LTM revenue (3,398); excess 11,311 excluded from IC.
Post-employment benefits 2026-06-30	1,739	Consolidated balance sheet (condensed) 📄 p.12	Interim BS pension liability line, included in IC; company's own net-indebtedness definition uses the same 1,739.
Pension net interest cost FY2025	49	Note 23 Employee benefits, p.138 — expenses recognized 📄 p.140	49 MSEK net interest is charged to financial expenses, i.e. already below EBIT — no reclass adjustment required (286 of the 335 total DB expense sits in opex as service cost).
Accumulated OCI reserves FY2025	810	Statement of changes in equity, p.106 — hedging 8 + translation 802 📄 p.108	OCI-stripping base; 1H 2026 adds +5,780 reclassifiable OCI (Q2 p.11) -> 6,590 at 2026-06-30. SEK-weakening in 1H26 reversed part of 2025's -15,208 translation loss.
OCI 1H 2026 (reclassifiable)	5,780	Statement of comprehensive income — items that may be reclassified 📄 p.11	Translation 5,994 + net-investment hedge -348 + tax 134. Stripped from equity so IC reflects deployed capital, not FX swings.
Operating cash flow FY2025 (statement)	32,566	Consolidated statement of cash flows, p.107 📄 p.109	FCF anchor: 32,566 - 4,284 PPE + 165 sales - 1,903 intangibles = 26,544; LTM 25,429 after 1H roll.
EBITA 1H 2026	18,825	Group key figures table 📄 p.2	EBITA - OP = 1,315 = interim acquisition-related amortization; used to build the LTM PPA figure we keep in opex.
Company WACC	0.08	Revenues, profits and returns 📄 p.4	Group states 8.0% after-tax WACC as its investment benchmark — matches our EP charge exactly, so our 18.1 BSEK Economic Profit is on the company's own hurdle.

Quality · Buffett tenets12 / 15

Understandable business●●●

Four decentralised business areas (compressors, vacuum, assembly tools, power) selling equipment plus a service annuity at 38% of Group revenues; the 20.3% LTM EBIT margin held through the 2025 trough (revenue -4.8% yoy) — a legible model with its cyclicality well mapped.

Durable moat●●○

[byteskostnader · stabil] Installed-base service = 38% of Group revenues FY2025 (Compressor Technique 43%), service orders growing in all four BAs and all regions in Q2-26; trough-year spread +15pp (adjusted ROIC 23.0% vs the company's own 8.0% WACC) — scored on the mid-cycle frame, not the incoming semis peak; spread persistence beyond the LTM is not verified in this streamlined frame, so 2 not 3; falsifierare: service share of revenues falling, or semis-vacuum share loss during the VT capex upcycle.

Management & capital allocation●●●

[allokering · candor] 25+ bolt-ons closed in 2025 fully self-funded — net debt/EBITDA 0.5 even after the SEK 24.4bn dividend step-up (14.6bn 2025); APM divergence -1.4% (only recurring-restructuring treatment separates us) and no goodwill impairment on a SEK 51.2bn stock; röd flagga: ROCE diluted 26%→24% by the acquisition cadence — a goodwill write-down or a large platform deal would drop the score.

Financial strength & returns●●●

Adjusted ROIC 23.0% vs 8.0% WACC (+15pp) in a trough-to-recovery LTM — the world-class industrial band; economic profit SEK 17.8bn (15.0% of invested capital); FCF SEK 25.4bn ≈ 93% of NOPAT; net debt/EBITDA 0.5.

Valuation margin of safety●○○

At SEK 167.2 the EV (828.9bn) capitalizes ~5.5% perpetual EP growth — the no-growth value (NOPAT/WACC) is only ~67/share, i.e. ~2.5x PEBV; base target 180 offers ~8%. Quality fully priced; no discount.