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S&P upgrades Atlas Copco on sustained credit metrics

S&P Global Ratings upgraded Atlas Copco AB's long-term issuer credit rating to A+ from A, with a stable outlook, saying the Swedish industrial machinery manufacturer was expected to sustain "very strong" credit metrics.

The rating agency projected the company's pro forma funds from operations to debt ratio, which has been above 60% since 2010, to be about 100% in 2018, before rising to between 120% and 130% in 2019.

Atlas Copco's EBITDA margin was also forecast to strengthen to between 25% and 26% in 2018 and 2019, from 25% in 2017.

Healthy backlogs in all divisions, along with continued strong near-term demand from end markets, will drive revenue growth of 8% to 12% in 2018 and 5% to 8% in 2019, according to S&P.

"We expect that the group will continue to benefit from the cyclical tailwinds in the near term, but also that structural demand drivers, such as increasing automation and electrification trends, should enable Atlas Copco to continue to outpace historical growth patterns," the rating agency said.

The company will also maintain strong free operating cash flow generation even in periods of softer demand, S&P added.

S&P also said the impact of the planned spin off of the Epiroc business will be mitigated by the slightly higher profitability of Atlas Copco's remaining operations and their lesser exposure to volatile sectors.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.