Automation Reliance And Concentrated Mining Exposure Will Challenge Long Term Earnings Resilience

Catalysts

About Epiroc

Epiroc supplies equipment, tools, automation and digital solutions for mining and infrastructure customers globally.

What are the underlying business or industry changes driving this perspective?

• The heavy focus of mining customers on brownfield expansions and productivity upgrades, rather than broad based fleet replacement or new greenfield capacity, can cap equipment intensity per site and limit pricing power. This may hold back revenue growth if current activity levels ease from recent highs.
• Epiroc’s large exposure to gold and copper, which together account for 65% of mining orders, increases dependence on a narrow group of commodities. Any shift in project timing or capital spending priorities in these areas could slow equipment and service orders and weigh on earnings.
• Automation and electrification currently represent a modest share of group revenue, for example electrification at 3.8%, and require ongoing R&D and support costs. If customer adoption slows or large reference projects do not repeat at similar scale, the mix of upfront investment versus realized sales could pressure net margins.
• The push to build global hubs and consolidate production, including shifting tools manufacturing from Canada to Mexico and expanding the footprint in India, concentrates execution and geopolitical risks. Any disruption or cost overrun in these moves could offset the targeted efficiency gains and compress operating margins.
• Rising input costs, such as tungsten prices that more than doubled in 2025 and tariffs that reduced the group operating margin by just below 0.5 percentage points in Q4, highlight how sensitive the model is to external cost shocks. If pricing actions lag or customer resistance increases, this could dilute both revenue growth quality and earnings.

Assumptions

This narrative explores a more pessimistic perspective on Epiroc compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Epiroc's revenue will grow by 3.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 13.9% today to 15.8% in 3 years time.
• The bearish analysts expect earnings to reach SEK 10.9 billion (and earnings per share of SEK 9.23) by about January 2029, up from SEK 8.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK12.9 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.0x on those 2029 earnings, down from 35.5x today. This future PE is lower than the current PE for the SE Machinery industry at 25.2x.
• The bearish analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Mining demand accounted for 79% of orders in 2025 and management described it as robust, with high activity in gold and copper and a healthy project pipeline. If this level of mine development and replacement work continues, it could keep revenue and earnings more resilient than a bearish view assumes.
• Service is 41% of revenues and 63% of quarterly revenues came from aftermarket, with management highlighting an 8.6 year average fleet age, customer share above 50% and specific efforts to win more contracts. A larger share of high margin service work could support operating margins and earnings.
• Automation and electrification are already generating orders such as the SEK 2.2b Fortescue contract and revenues that represent 3.8% of group sales, while 3,900 driverless machines and 40 mines using BEVs show installed scale. If customers continue to roll these solutions out across more sites, this could support long term revenue and net margin resilience.
• Tools & Attachment achieved its highest EBIT to date in 2025 with an adjusted margin of 12.3% and management expects further benefits from site consolidations in Essen, Kalmar and later Canada to Mexico. Ongoing cost efficiencies could offset some input cost and tariff headwinds and support group operating margins.
• The company ended 2025 with SEK 9.6b in cash, a net debt to EBITDA ratio of 0.73 and a cash conversion over 12 months of 90%, and the Board proposed a dividend equal to 53% of net profit. This suggests a balance sheet and cash flow profile that can support ongoing investment and shareholder returns and may underpin earnings resilience.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Epiroc is SEK185.0, which represents up to two standard deviations below the consensus price target of SEK228.65. This valuation is based on what can be assumed as the expectations of Epiroc's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK280.0, and the most bearish reporting a price target of just SEK185.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be SEK68.8 billion, earnings will come to SEK10.9 billion, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK252.4, the analyst price target of SEK185.0 is 36.4% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.