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Volvo shares seen gaining 20.6% over next 12 months

Washington

THE world's second-biggest maker of trucks is about to increase its market value by roughly a fifth, if analyst estimates are to be believed.

Volvo AB, which can hardly keep up with orders, will probably enjoy rising demand for trucks through 2019, according to Graham Phillips, an analyst at Jefferies Group LLC. He says fears that Volvo is vulnerable to swings in the economic cycle are now playing too big a role in steering the share price.

The average of analyst estimates provided to Bloomberg shows that Volvo's shares should gain 20.6 per cent over the next 12 months. That's the second-best return potential of all companies traded on the benchmark OMX Stockholm Index. It's also roughly double Volvo's historical average over the past decade.

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"As long as the truck and construction-equipment markets remain stable to up, which is what we expect, we think there is room for further improvement," Mr Phillips said. "The problem is that people have generally expected the markets, mainly the truck markets, to turn down again."

Volvo rose as much as 1.4 per cent on Friday, making it one of the day's best performers in Stockholm's OMXS30 index.

Last quarter, chief executive officer Martin Lundstedt managed to exceed Volvo's profitability target for the first time ever after his rigorous programme of cost cuts coincided with rising demand.

The 51-year-old former Scania AB boss, who took over in late 2015, characterised demand as "solid" in the three months through June. He also increased sales to small customers and even pushed through higher prices.

Not since 2013 have there been as many analysts advising investors to buy Volvo shares, with 64 per cent of recommendations urging clients to purchase stock in the Swedish company. WP