The Capital Goods Data Miner - May 2024

Our key long ideas are: Alfa Laval, Hexagon, Metso, Sandvik, Volvo. We are cautious on: Autoliv, Nibe, Wärtsilä

Q1 trends, estimates, valuation and top picks

The Q1 reports proved that sector companies could maintain record-high margins despite volume declines.

Alfa Laval (Buy, TP: SEK540.00) - Sit back, relax and enjoy the ride

Q1 confirmed that demand remains strong for Alfa Laval and strengthened our view that investors and consensus are exaggerating concerns about the heat pump demand slowdown and underestimating the strength of the Marine market. Alfa Laval remains our sector top pick, being an enabler of the energy transition with promising long-term growth prospects. We reiterate our BUY and have raised our target price to SEK540 (495), having increased our 2025–2026e adj. EBITA by 6–7%.

Easily brushing HVAC weakness aside

Orders 11% higher, with Marine and Energy jumping. Sales lagged, but no major concern; adj EBITA +4%. Great exposure, visibility, financials - keep BUY

Strong orders, resilient margin despite lower sales

Arjo (Buy, TP: SEK58.00) - An in-line report

The Q1 results were fairly in line with our expectations, with the main deviation higher restructuring charges. Adjusted for this, EBIT was in line. Overall, organic growth was 4.3% YOY, in line with the full-year guidance of 3–5%. Arjo also provided an update on the Randomised Controlled Trial (RCT) for Wound Express, where data should be available in mid-2025. We reiterate our BUY, but have lowered our target price to SEK58 (60).

Alfa Laval (Buy, TP: SEK495.00) - Alfa Lavalicious

We are 4% above consensus on Q1e orders but roughly in line on sales and adj. EBITA, and expect the company to guide for unchanged demand in Q2 versus Q1. We reiterate our BUY and have raised our target price to SEK495 (430) after raising our 2024–2026e adj. EBITA by 5% on average. We are 4–10% above consensus on 2024–2026e adj. EBITA and continue to view Alfa Laval as one of the sector’s most exciting long-term growth stories, driven by the energy transitions.

Arjo (Buy, TP: SEK60.00) - Steady as she goes

We expect broadly stable trends in Q1 versus recent quarters, and forecast decent underlying growth, with patient-handling and pressure sore prevention again facing some headwinds but service and rental still going strong. We also expect a small negative impact from Red Sea-related logistics issues, but not enough to alter the overall picture. We reiterate our BUY and SEK60 target price.

Alfa Laval AB: 1 director

A director at Alfa Laval AB bought 750 shares at 392.500SEK and the significance rating of the trade was 53/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clearly s...

Alfa Laval (Buy, TP: SEK430.00) - Better than it looked – still good

We believe investors found Q4 worse than it was due to poorly disclosed one-off costs in Energy and Food & Water. With the strong improvement in the Marine EBITA margin YOY and potential for further improvement in 2024, as well as robust commentary on underlying demand for Q1 and 2024 (barring heat pumps and Desmet), we continue to find the outlook for 2024 attractive (we expect adj. EBIT up >20% YOY, flat for the sector). We reiterate our BUY but have trimmed our target price to SEK430 (435).

Arjo (Buy, TP: SEK60.00) - End of 2023 bodes well for 2024

Q4 earnings were stronger than expected, with the drivers boding well for the start of 2024 even though the guidance remains on the conservative side, in our view. The beat was driven by a stronger than expected gross margin, and we believe the underlying effects should carry into 2024. We have raised our 2024–2026 estimates, mainly for the gross margin. We reiterate our BUY and have increased our target price to SEK60 (55).

Arjo (Buy, TP: SEK55.00) - Q4 looking good

We believe the Q4 results (due at 07:00 CET on 30 January) will confirm the trends of recent quarters, leading us to expect organic growth towards the top end of the 3–5% guided range and a QOQ improvement in the gross margin. Furthermore, we expect management to stick with the same range for the 2024 guidance, while we forecast c4.5% (in line with consensus). We reiterate our BUY and SEK55 target price ahead of the Q4 report.

Alfa Laval (Buy, TP: SEK435.00) - Solid Q4e in the making

We are in line with consensus on Q4e orders but 4–6% below on sales and adj. EBITA following our reduced FX forecasts. We believe underlying trends in Q4 will have been robust compared to Q3 and focus should be mainly on order intake and continued margin improvements in Marine. We have cut our 2024–2025e adj. EBITA by 4–5% on FX, but reiterate our BUY and SEK435 target price. At >20% adj. EPS growth in 2024e, Alfa Laval still screens as one of the best names in the sector and remains a sector to...

Decoding Alpha

Our analysis of underlying total shareholder return (TSR) drivers for Swedish Industrial companies reveals that high returns are not synonymous with high valuations. Investors tend to overpay for ‘growth’, while cash returns such as dividends and buybacks are typically deeply discounted. We believe Autoliv, Alfa Laval and Hexagon offer the most long-term TSR potential (13–14% annualised), with SKF and Trelleborg at the other end of the spectrum (8–9%), while also concluding that several stocks l...

Alfa Laval (Buy, TP: SEK435.00) - Margins improving

We reiterate our BUY but have trimmed our target price to SEK435 (445) and believe the Q3 report supported our case on the upside potential for Energy and Marine margins. However, management’s comment about a slower ramp-up of new capacity in Energy to match demand was a small negative, in our view. We have raised our 2023–2025e adj. EBITA by 2% on average.

Arjo AB: 1 director

A director at Arjo AB bought 30,000 shares at 35.500SEK and the significance rating of the trade was 59/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clearly showi...

Arjo (Buy, TP: SEK55.00) - Solid Q3 report

Q3 earnings were a tad better than expected. Organic growth was 4.6% YOY for Q3 and for 9M 2023. We believe the c8% YOY organic growth in the US in Q3 was a positive. The Q4 gross margin guidance was a bit lower than expected, hurting the share price. However, we expect the Q4 underlying adj. EBITDA to be solid due to product mix and do not see the comments about the gross margin as too negative. We reiterate our BUY and SEK55 target price.

Arjo (Buy, TP: SEK55.00) - Slow but steady normalisation of end-market...

We expect an uneventful Q3 report, with continued trends from Q2 (Q3 earnings due at c07:00 CET on 19 October). We forecast a gross margin in line with the guidance. Overall, activity in elective procedures should continue to improve and over time have a positive effect on Arjo. For the SEM Scanner, improvements are slow, but we believe it is moving in the right direction. We have only made minor estimate changes ahead of the Q3 results, and reiterate our BUY and SEK55 target price.

Alfa Laval (Buy, TP: SEK445.00) - Marine margins set to recover

We are 1–2% above consensus on Q3e orders, sales and adj. EBITA and believe focus should mainly be on order intake and potential improvement in Marine margins. We have raised our 2024–2025e adj. EBITA by c2% (driven by positive FX effects and higher assumptions for capacity expansion in Energy) and are now c10% above consensus for both years. We like the story and find the valuation attractive at a 2024e EV/EBIT of 13.5x. We reiterate our BUY and have raised our target price to SEK445 (440).

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