Cyclicals Back in Focus: Easing Postwar Shock Could Lift Capital Goods

Overview

This report is Deutsche Bank's Industrial Logic capital-goods weekly, focusing on whether European capital-goods and industrial cyclical stocks regain appeal after the U.S.-Iran MoU, the lifting of the Hormuz blockade, and a 60-day extension of the ceasefire. The report argues that European companies that were heavily affected by energy-price and inflation pressures during the war may benefit as price pressure eases and corporate investment confidence recovers, especially short-cycle capital-goods companies that are more sensitive to industrial production and whose share prices have not yet fully recovered.

Core views

The core views are: first, companies with high sensitivity to German industrial production but share prices still below prewar levels may have rebound potential, with KION, Knorr-Bremse, and SKF highlighted. Second, some companies have clear catalysts, such as Knorr-Bremse's Q2 strategic update and medium-term margin target, SKF's automotive-business spin-off, and a potential clearing event for KION after a FY26 EBIT guidance cut. Third, data centers, electrification, and cable demand remain structural bright spots, with Schneider's cooperation with Foxconn, Nexans' Electra event, and management commentary all supporting demand. Fourth, macro data remain mixed: U.S. manufacturing, industrial production, and housing starts are soft, German ZEW improved, and Chinese industrial production was slightly better than expected.

Analysis framework

The report combines event-driven analysis, macro data, sector valuation, share-price performance, and company catalysts. The key charts cross-compare capital-goods companies' organic sales growth correlation with German industrial production and share performance since the Iran war, to identify potential rebound names with high short-cycle industrial exposure whose shares have not yet recovered.

Methodology notes

• Cycle and macro sensitivityIndustrial production correlation analysis

  Use the correlation between German industrial production and a company's organic sales growth to measure short-cycle exposure.

  A higher correlation typically indicates that revenue is more sensitive to the industrial cycle; when energy pressures ease after the war and investment confidence recovers, such companies may have greater earnings leverage.

• Valuation comparisonP/E and EV/EBITA peer comparison

  Use 2026E P/E and EV/EBITA medians and company multiples to judge valuation positioning.

  The report cites a European sector 2026E median P/E of 22.2x and EV/EBITA of 16.0x, and compares large caps, SMID names, and individual stocks across the group.

• Event catalystCompany catalyst tracking

  Focus on earnings releases, strategic updates, spin-offs, joint ventures, orders, and project tenders.

  Knorr-Bremse's medium-term target, SKF's automotive spin-off, KION's guidance adjustment, Nexans' project tender, and GEA management buying are all viewed as potential share-price drivers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KION

  Short-cycle capital-goods rebound candidate

  Strengths

  Valuation is close to historical lows; the business mix is more resilient than in prior cycles; it has dynamic pricing, price adjustment clauses, and a lower breakeven point.

  Weaknesses

  Macro uncertainty, higher rates, inflation pressure, and a risk of FY26 EBIT guidance cuts.

  Comparison

  The report believes the market has largely priced in a pessimistic scenario, with an asymmetric risk/reward profile and upside larger than downside.

  Risks

  If macro demand weakens further or the guidance cut is larger than expected, the share price could remain under pressure.

• Knorr-Bremse

  High sensitivity to industrial production, with a strategic-update catalyst

  Strengths

  A strategic update will be provided with Q2 results on July 30, and the report expects the medium-term margin target could reach 16% or more.

  Weaknesses

  The share price remains below prewar levels, showing that the market is still cautious about the cyclical recovery.

  Comparison

  Like other short-cycle capital-goods names, it may benefit from improving German industrial production and a postwar sentiment recovery.

  Risks

  If the medium-term target is below expectations or order recovery is weaker than expected, the re-rating case could weaken.

• SKF

  Re-rating driven by automotive-business spin-off

  Strengths

  The automotive-business spin-off remains on track for the fall, and the report is constructive on a post-spin re-rating, maintaining Buy and adjusting the target price to SEK 280.

  Weaknesses

  Normal cyclical conditions in 2025 and 2026 are being distorted by tariff changes and front-loading, while H2 cost inflation remains a headwind.

  Comparison

  Among high industrial-production-correlation names, SKF's share price remains close to or slightly below prewar levels, giving it event-driven appeal.

  Risks

  Spin-off timing, cost inflation, and the pace of demand recovery are the main risks.

• Siemens Energy

  Potential divestment of the Transformation of Industry business

  Strengths

  If the TI business is separated, the company could refocus on electrification markets, reduce oil & gas and petrochemical exposure, and mechanically improve margins by at least 50 bps.

  Weaknesses

  The transaction structure and likelihood of completion remain uncertain.

  Comparison

  The report believes the post-divestment profile would look more like GEV, potentially narrowing the valuation multiple gap.

  Risks

  An IPO, spin-off, or M&A solution may not materialize, or the transaction terms may be unfavorable to shareholders.

• Nexans

  Beneficiary of cable, transmission, and data-center demand

  Strengths

  The Electra cable-laying vessel should improve bidding competitiveness and margins, and management remains constructive on data-center demand in Europe and the U.S.

  Weaknesses

  The company still needs to await the tender result for the MI transmission project.

  Comparison

  The report says the stock trades at roughly a 40% discount to Prysmian while gaining exposure to data centers and the U.S. market.

  Risks

  Project-tender uncertainty, execution risk, and the persistent peer valuation discount.

• GEA

  Defensive growth name upgraded to Buy

  Strengths

  Fundamental resilience, improving revenue momentum, continued margin expansion, a rising share of service and digital revenue, and management buying.

  Weaknesses

  The share price had fallen to a 52-week low, and the market still has doubts about growth and valuation.

  Comparison

  At around 10.3x EV/EBITDA, it is below the 10-year median by roughly 15%; the report believes its relative resilience and valuation mismatch are more attractive.

  Risks

  MISSION 30 execution, revenue recovery, and margin expansion may fall short of expectations.

• Sandvik

  Buy-rated name with mining and industrial exposure

  Strengths

  Mining and industrial market dynamics are positive; the report expects Q2 results to meet DB estimates or slightly beat consensus, with group EBITA margins expanding by roughly 300 bps year over year.

  Weaknesses

  Year-over-year comps are becoming tougher in mining orders, and FX remains a headwind.

  Comparison

  The report maintains Buy with a target price of SEK 445.

  Risks

  A slowdown in mining orders, tungsten price changes, and FX effects.

• Epiroc

  Fundamentally solid but limited near-term upside surprise potential

  Strengths

  Mining demand is strong, and construction demand is expected to improve slightly from low levels.

  Weaknesses

  No large announced orders in the quarter, and equipment-order visibility is relatively low.

  Comparison

  The report maintains Hold and adjusts the target price to SEK 267.

  Risks

  Insufficient orders, limited evidence of margin improvement, and a market that demands strong execution.

Key data

• European capital goods sector weekly performance+6.0%The report says the sector rose 6.0% last week.
• Relative performance vs. STOXX Europe 600+3.5 percentage pointsThe report says the sector outperformed STOXX Europe 600 by 3.5 percentage points.
• European capital goods 2026E median P/E22.2xSector valuation as of Thursday.
• European capital goods 2026E median EV/EBITA16.0xSector valuation as of Thursday.
• Knorr-Bremse potential medium-term margin target16%+The report expects a 2029 or 2030 target, about 2 percentage points above the 2026 guidance.
• KION year-to-date declineAbout -40%The report believes the decline may be excessive and the current share price already reflects a pessimistic scenario.
• KION risk/rewardAbout 20% downside / 100% upside potentialFrom the report's description of asymmetric upside in KION.
• Wartsila storage JV expected EBIT impact-€40m to -€50mExpected negative contribution to Wartsila EBIT in 2026, including the impact of transformation actions.
• Fujikura FY26 operating profit guidance increase+47%At the same time, H1 profit guidance was raised by 89%.
• GEA target priceEUR 70Raised from EUR 64, with the rating upgraded to Buy.
• Sandvik target price445 SEKThe report maintained a Buy rating.
• SKF target price280 SEKThe report maintained a Buy rating.
• Epiroc target price267 SEKThe report maintained a Hold rating.

Impact & implications

The investment implication is that, if the energy shock continues to ease and industrial investment confidence improves, stocks in European capital goods with high short-cycle exposure, sufficient valuation compression, and clear company catalysts may be the first to recover. At the same time, structural demand from data centers, electrification, cables, and mining continues to provide support. However, the report also warns that weak U.S. manufacturing and housing data, potential guidance cuts at some companies, cost inflation, and limited order visibility mean that the rebound is better approached through valuation, catalysts, and fundamental resilience rather than indiscriminately buying cyclicals.

Risks

• Weak U.S. macro data such as manufacturing, industrial production, and housing starts could constrain the cyclical recovery.
• If energy prices and geopolitical risks rise again, profitability and investment sentiment for European capital goods could come under pressure once more.
• Some companies face FY26 EBIT guidance cuts, limited order visibility, or cost inflation pressures.
• Company catalysts such as spin-offs, strategic updates, project tenders, or joint venture deals may be delayed or fall short of expectations.
• Valuation recovery depends on improved market risk appetite; if rates rise or global growth expectations are revised down, cyclical stocks could continue to trade at a discount.

What to watch

• Knorr-Bremse Q2 results and medium-term target update on July 30.
• Whether KION cuts FY26 EBIT guidance and whether the market views it as a clearing event.
• Progress on SKF's automotive-business spin-off in the fall.
• The result of Nexans' MI project tender, which is expected to become clear as early as the start of Q3.
• Whether Siemens Energy advances an IPO of the TI business, a spin-off of a majority stake, or a merger with a competitor.
• European, German, and French manufacturing PMIs, French manufacturing confidence, the U.S. Richmond Fed manufacturing index, building permits, and wholesale inventories.
• Whether structural demand in data centers, electrification, cables, and mining equipment continues to support orders and margins.