Working Capital improves for Nordic companies
At a Glance
Per the full note source, the Nordic region is witnessing a discernible improvement in working capital across a significant number of companies. This enhancement, observed over the period from 2016 to 2019, slightly offsets a decrease in Return on Capital Employed (ROCE), which dropped from 8% to 6.8%. The changing dynamics in working capital underscore the importance of liquidity management, especially in light of declining EBIT margins despite sales growth. Institutional traders should consider how these trends may impact currency strength and broader economic conditions in the region.
Key Takeaways
- 01Nordic working capital has improved, though EBIT margins have declined, signaling complex market dynamics.
- 02The decrease in ROCE from 8% to 6.8% highlights challenges in profitability amid sales growth.
- 03Critical liquidity management strategies are in focus for Nordic companies to maintain operational efficiency.
- 04Diverging forecasts from major banks indicate the need for vigilance in currency positioning.
Full Analysis
What the desk is arguing
The desk posits that the improvement in working capital for Nordic companies reveals underlying resilience amid decreasing profitability. According to Nordea’s findings, despite a considerable 1.2% decline in ROCE, the enhancement in working capital mitigates losses in company valuations, presenting a silver lining for the Nordic market.
Richard Hayes from Nordea highlights that working capital has improved relative to sales, albeit at a slower pace compared to previous periods, suggesting that companies are taking steps to enhance liquidity. This indicates an ongoing effort by Nordic firms to optimize their operational efficiencies.
Where it sits in our coverage
Given current market sentiment, our consensus target for the EUR/NOK stands at 1.075, with an expected range of 1.04 to 1.12. Recent targets from several firms suggest varying perspectives on the pair's trajectory: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This analysis aligns our outlook towards a cautious bullish stance, staying toward the upper end of the consensus range.
How other firms see it
Firms like jpmorgan and bofa appear divided on the outlook for Nordic currencies amid these developments. While jpmorgan supports a stronger forecast for EUR/NOK, bofa exhibits a more pessimistic view. Traders should therefore monitor these divergent analyses to gauge market sentiment.
Additionally, the Eurozone economic performance, alongside the movements of the European Central Bank, will have implications for Nordic currencies. As working capital improves, we could see potential strength in the NOK, provided the external economic pressures remain manageable.
Market Implications
Traders should keep an eye on EUR/NOK resistance around 1.075. A sustained breach above this level may catalyze further appreciation of the NOK in response to improving working capital trends.
From the original
Insights Working Capital improves for Nordic companies 09-12-2020 Nordea’s Working Capital Study 2020 has analysed the working capital performance of 9300 companies between 2016-2019 by using data from publicly available financial reports. The study found that overall the level o
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The desk interprets Nordea's Overdues Report 2021 as evidence that Nordic companies are emerging stronger post-COVID, particularly in terms of liquidity and risk management. Per the full note, businesses in the region have demonstrated considerable resilience, indicating a broader trend towards improved financial discipline. This focus on maintaining liquidity could support currency stability across the Nordic region, affecting trading strategies involving NOK and SEK. Additionally, the market's attention to these developments aligns with an overall cautious sentiment regarding risk assets, prompted by recent economic uncertainties.
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