Alfa Laval Earnings: Energy and Marine End Markets Drive Record Quarterly Order Intake
Wide-moat Alfa Laval ALFA reported organic order growth of 9% during the quarter to a record SEK 18.4 billion, a slight increase from the record achieved in the previous quarter. Demand relating to aftermarket services and long-term projects remains healthy, particularly in the energy and marine end markets, which are at the forefront of the energy transition. Similar to other industrial businesses this quarter, the execution of a sizable order backlog from the previous year was the main contributor to the group’s 17% organic revenue growth year over year. While we plan to revise our top-line forecasts to reflect the group’s strong first-half revenue performance, we don’t expect to make a material change to our SEK 280 fair value estimate, which will alter our investment recommendation. Shares currently appear overvalued.
EBITA grew 24% during the second quarter, a slower pace than reported revenue growth of 34%. Margin compression of 150 basis points to 15.0% is attributable to an unfavorable sales mix effect in the food division and ongoing weakness in the marine segment. A proactive step was restructuring underutilized product categories, which was implemented at the end of 2022 to address the latter, so we are confident that management will be able to restore profitability in the marine business. A strong improvement is expected in the third quarter. Alfa Laval’s SEK 45 billion backlog, 18% higher than at year-end, provides useful visibility for investors amid an uncertain economic environment. The execution of the group’s backlog at higher prices will also support recovering margins.
Correction: July 20, 2023: A previous version of this note incorrectly said that margin compression of 150 basis points to 15.5% is attributable to an unfavorable sales mix effect in the food division and ongoing weakness in the marine segment. We amended this to 15.0%.
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