A V-shaped recovery from Covid-19. As one of the most cyclical sectors, machinery and equipment is often hit hard and fast during slowdowns and recessions. The global sector is also heavily reliant on China, which is key from both a demand and supply perspective: It represents about a quarter of global exports for the sector and many countries depend on imports from China for intermediary products.
Unsurprisingly, global exports started declining in late 2019, then rebounded with some hiccups due to sanitary restrictions around the world, reaching their pre-Covid levels in Q3 2020 as many economies and especially Asia were progressively getting out of the severe pandemic situation. This pattern is also visible for the main exporters, with China, Germany and the US now above or very close to late 2019 levels. With the global economic recovery gaining steam, consumption of manufactured goods has been increasing steadily since Q3 2020. Many traditional end markets for machinery and equipment are rebounding sharply across the globe, thanks to pent-up demand (energy, mining, construction or agrifood to name a few), which has been a tailwind for the sector over the past year.
However, only pockets of the sector will benefit from the tailwind beyond the current recovery. In the short term, the outlook for machinery and equipment is quite positive as many firms are increasing capex substantially to keep up with this post-pandemic boom and estimates for capex in 2022 are on the upside. Fundamentals in the sector remain quite solid and earnings have been surprising on the upside in Q3 2021, with actual earnings per share on average higher by +8% in our sample of over 30 000 firms. In 2022, revenues should grow about +7% and EBITDA should increase by +12%. In the longer run, some pockets of the sector will benefit from the green transition that will require new equipment to allow, for instance, more mining of lithium, increased production of batteries etc. Other trends such as automation or the deployment of 5G technology will also support some specific segments in the sector.