Morningstar | Alfa Laval
What we like about Alfa Laval’s business is the stream of revenue that comes from providing maintenance and spare parts to customers using its long-life equipment, much of which is used by its customers for 20 years. We also think the company's increased focus on less cyclically sensitive and regulated industries--such as food processing and sanitary services--will provide some counterweight to the more cycle-driven segments in its customer base, such as shipbuilding and energy. This diverse revenue mix, combined with aftermarket sales, sustains strong cash generation even in times of volatility, as with the current environment for shipbuilding and energy. We also think its exposure to highly regulated industries, such as food processing and pharmaceuticals, leads to cash flow stability. In eight of the past 10 years, Alfa Laval has increased its free cash flow per share, even after adjusting for share buybacks.Alfa Laval has number-one market share in all three of its product categories: heat exchangers, fluid separators, and liquid handling. Its heat exchanger equipment is integral to operating machinery across many industries, while its separation and fluid handling equipment are integral to process lines and provide essential functions onboard ships. At a very basic level, heat exchangers juxtapose something hot with something cold to regulate temperature. Some common examples include milk pasteurisers and radiators used to heat homes, with the latter using air for cold and steam for heat. Although heat exchangers are mainly used for cooling in industrial applications, they can also be used for heat recovery, increasing energy efficiency onboard a ship or in a factory. From an engineering perspective, challenges begin when extreme temperatures must be safely cooled in a specific amount of time with the greatest possible energy efficiency. Because of this, a company designing radiators or other basic commercial exchangers would not have the skill or track record to sell into the high-performance industrial heat-exchanger market that Alfa Laval dominates.Alfa-Laval AB is a supplier of products and solutions in the technologies of heat transfer, separation and fluid handling. Co.'s equipment is used to heat, cool, separate and transport products in industries that produce food, beverages, fuel, chemicals, pharmaceuticals, starch, sugar and ethanol. They are also used aboard vessels, in power plants, in the engineering industry, for treating sludge and wastewater, for heating and cooling, and others. Co.'s products include: air heat exchangers, plate heat exchangers, shell-and-tube heat exchangers, thermal fluid systems, boilers, decanters, belt filter presses, high-speed separators, membrane filtration, pumps and valves, and tank equipment.
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