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 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 mixture ahead PE, from 36x in February 2021 to 25x as of right this moment, according to 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 power of firms 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 issues 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. Nevertheless, it has additionally introduced continued optimistic 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. Combination gross sales development for ROBO index members is about to succeed in 13% in 2022, pushed by Sensing, Computing/AI, Meals & Agriculture, and Actuation. That is considerably increased than the 8% common gross sales development over the previous 9 years, and the 8% anticipated income development for the S&P500 excluding Power. And that is regardless of large foreign money headwinds, with the US greenback index now up 13% YTD.

How do Robotics & Automation firms fare in inflationary instances?

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

As well as, inflation seems to be primarily resulting from a constrained provide facet – suppose 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-Power index in 2022, which might mark the biggest hole between income/earnings development and capex in a long time, in response to Empirical Analysis.

Engaging acquisition targets

Regardless of uncertainty in monetary markets, robotics and automation firms 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

Increased 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 battle 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 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 embody a small variety of very high-growth firms, akin to AutoStore, Luminar, iFlyTek, Nvidia, iRhythm and ServiceNow, that are buying and selling on comparatively excessive multiples. The truth is, 8 out of ROBO’s 82 constituents commerce on an EV/gross sales a number of larger than 10x. 

Plenty of low-cost shares in ROBO 

ROBO additionally consists of many gradual and regular compounders, working in additional mature segments of the market akin to manufacturing unit automation and equipment, which are buying and selling on very low multiples. The truth is, 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 worth/earnings perspective, 6 firms are buying and selling on a single-digit ahead PE.

Underweight Europe / chubby Asia

We word that ROBO is underweight Europe and chubby Asia in contrast with a typical international fairness allocation. Japanese firms particularly account for 22% of the portfolio, with most of the world’s main manufacturing unit automation gear and part producers based mostly 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.

Thus far 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 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