Morningstar | Alfa Laval's 1Q Mixed, but Medium-Term Demand Still Looks Solid; Shares Modestly Overvalued
Alfa Laval reported first-quarter results that were below consensus but continued to post exceptional growth and margin expansion from robust equipment volume. Regulatory required equipment in the marine division and a rebound in investment from energy end markets continue to drive demand. Demand for marine regulatory-related equipment is in the middle of a compressed period of equipment investment to meet medium-term regulatory deadlines. We retain our wide moat rating and SEK 185 fair value estimate. The shares look modestly overvalued.Ballast water treatment and fuel scrubber equipment necessary to meet regulatory requirements from the International Maritime Organization continued to boost the marine division. Organic revenue and orders grew 44% and 34%, respectively. Demand for the equipment should carry through to 2024, but we expect most ships will be fitted with the new equipment in the next two years. Volume growth increased the division EBIT margin by 150 basis points year over year.
The other two main divisions, energy and food and beverage, posted more mixed demand results but still with margin expansion of 70-80 basis points. Energy revenue declined 6%, but orders were up 11%. Food and beverage orders were down 3% year on year on a tough comparable from a large Mexican brewery order last year, while revenue grew 4%.
While management gave a more cautious outlook for the second quarter, this looks to be related to a short-term issue on fuel scrubber orders. Overall, we expect order demand to remain decent, given that the company is exposed to more long-term investment cycles from energy and other end markets, relative to short-cycle products, like auto components, that might be more sensitive to a turn in the business cycle.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.