Improving order outlook is the key highlight in FLSmidth's first quarter

Overview

This report is J.P. Morgan's Q1'26 earnings wrap-up and model update for FLSmidth. It argues that although first-quarter sales and adjusted EBITA missed expectations and the results were mixed, the better-than-expected order intake and improved outlook for mining project approvals are the more important investment signals. J.P. Morgan maintains Overweight and continues to view FLSmidth as a top pick among Mining OEMs.

Core views

The core views are: first, Q1'26 orders came in 7% above expectations, and management sounded more confident on project approvals, pipeline visibility, and engineering activity; second, the medium-term fundamentals of the mining cycle remain strong, supported by declining ore grades and copper exposure; third, Products margins were better than consensus even after stripping out reserve reversals, while Service margins are temporarily affected by delivery timing and mix but are expected to return to the 19-20% range over the full year; fourth, the stock trades at a valuation discount to mining peers and the capital goods sector, which the report views as attractive.

Analysis framework

The report assesses FLSmidth through earnings decomposition, order trend assessment, segment margin analysis, consensus comparison, and a combination of valuation multiples and reverse DCF. The focus is less on single-quarter profit fluctuations and more on the credibility of order recovery, the mining capex cycle, Products cost reduction, and the path to Service margin repair.

Methodology notes

• Valuation methodsreverse DCF and EV/adj. EBITA target multiple

  Support the June 2027 target price with reverse DCF and a 13.0x 2027E EV/adj. EBITA target multiple.

  The report says the June 2027 target price is based on reverse DCF, and that a 13.0x 12-month forward EV/adj. EBITA target multiple is applied to 2027 forecasts and rolled back six months. The multiple reflects through-cycle growth, margins, cost of capital, and asset intensity.

• earnings_modelestimate revision

  Update 2026-2028 adjusted EBITA and order intake forecasts.

  The report adjusts adjusted EBITA forecasts for 2026, 2027, and 2028 by 0%, 2%, and 1%, respectively, and raises 2026 order intake by 3% and the following year by 2% on better order trends and a Dkk300m large iron ore order.

• cycle_analysismining cycle outlook

  Assessment of the medium-term mining upcycle.

  The report believes short-term orders will not inflect sharply because of large mining capex exposure, but the medium-term fundamentals of the mining upcycle are very strong and FLSmidth is a key beneficiary.

Asset mapping & comparison

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

• FLSmidth (FLS.CO)

  Core covered company; J.P. Morgan maintains Overweight and calls it a top pick among Mining OEMs.

  Strengths

  Improving order momentum, strong medium-term mining cycle fundamentals, now a Mining pure-play after the Cement divestiture, high copper exposure, and cheap valuation relative to peers.

  Weaknesses

  Q1'26 sales and adjusted EBITA missed expectations, Service margins are temporarily weighed down by delivery and mix, and the Products business still needs further cost reduction to improve breakeven.

  Comparison

  The report says FLSmidth trades at a discount to mining peers and the capital goods sector, making it a cheaper way to participate in the mining recovery; its 10.5x 2027E EV/EBITA is below the report's 13.0x target multiple.

  Risks

  Mining order recovery arrives later than expected; Products cost reduction is slower than expected; Service delivery timing and product mix continue to pressure margins.

Key data

• Q1'26 order performance7% above expectationsThe report sees this as a more important highlight than the sales and adjusted EBITA misses.
• Service margin16.6%In line with management's expectations around delivery scheduling and mix, but below what the market may have expected; the report expects a return to the 19-20% range for the full year.
• Products margin adjustment-5.7% after stripping out about 5% of reserve reversalsStill better than consensus at -6.3%.
• Adjusted EBITA forecast revision2026E 0%, 2027E +2%, 2028E +1%Supported by better-than-previously-expected progress in Products and by Service margins remaining in the 19-20% range for the full year.
• Order intake forecast revision2026E +3%, 2027E +2%Driven by better order trends and a Dkk300m large iron ore order booked in Q2.
• Relative to consensus order forecasts2027E and 2028E both 5% above consensusThe report had already expected an order recovery starting in 2026.
• Copper exposure39%The report says FLSmidth is the most levered to copper among the companies it covers.
• Trading valuation10.5x 2027E EV/EBITAThe report views this as a discount versus mining peers and the sector.
• Target priceDkk670June 2027 price target; methodology unchanged.
• Target multiple13.0x EV/adj. EBITAApplied to 2027 forecasts and rolled forward six months.

Impact & implications

The investment implication of the report is that near-term earnings quality is not without blemishes, but the improving order trend and the mid-cycle mining recovery increase FLSmidth's medium-term earnings visibility. If the order recovery materializes, Service margins return to 19-20%, and Products cost reduction continues, the valuation discount for FLSmidth as a Mining pure-play could narrow. Conversely, if mining capex recovery is delayed or cost reduction lags, expectations for next-year revenue and margins would face downward pressure.

Risks

• A slower-than-expected mining recovery or order rebound could दब压 next-year revenue and margin expectations.
• Products cost reduction may progress more slowly than expected, especially if cost exits such as headcount reductions lag.
• If Service margins cannot recover from 16.6% back to the 19-20% range, full-year margin assumptions would weaken.
• Exposure to large mining capex means orders may not show a sharp near-term inflection.
• The report discloses potential conflicts of interest arising from J.P. Morgan's market-making/liquidity provision, client relationships, and possible investment banking compensation related to FLSmidth or related entities.

What to watch

• Whether mining project approvals and order recovery materialize from late 2026 into 2027.
• The Dkk300m large iron ore order booked in Q2 and the subsequent pipeline of large orders.
• Whether Service margins can recover to the 19-20% range for the full year.
• Progress on Products cost reduction and the underlying margin improvement after removing one-off reserve reversals.
• Updates from the new CEO Toni Laaksonen at the November 2026 CMD on strategy and the Mining pure-play positioning.
• Whether consensus adjusts the treatment of Valby tax benefits and the resulting improvement in the P/E view.