Alfa Laval Earnings: Record Order Intake Sends Shares 5% Higher

Wide-moat Alfa Laval ALFA reported a strong first quarter, delivering organic order growth of 25% and a sequential increase of SEK 2.6 billion from last quarter, despite having guided for demand to be at a similar level. However, management cautioned against investors expecting this rate of growth to be the norm and guided for demand to be sequentially lower during the second quarter. Order intake growth across the marine and energy segments outperformed Wartsila, which also reported its first-quarter results April 25, and mitigated a decline in orders in Alfa Laval’s food and water division due to a tough comparable. Similar to its peer, shares are trading higher on the day. We plan to revise our top-line forecasts to reflect the group’s strong first quarter but reiterate our SEK 280 fair value estimate. The shares currently look overvalued.

Organic revenue grew 15% during the first quarter, benefiting from the easing of supply chain constraints and strong demand for services as well as price increases. The impact of price increases and a favorable sales mix toward higher-margin services supported organic margin expansion of 50 basis points but was more than offset by the impact of dilutive acquisitions, resulting in EBITA growth of 31%, slightly below reported revenue growth of 33%. Investments in capacity expansion across the energy division are likely to see margins compress from the second quarter.

Free cash flow grew by 13%, a more subdued rate than EBITA growth of 31% due to a significant increase in capital expenditure. A SEK 6 dividend has been proposed, which is flat year over year, highlighting the group’s capital allocation priority of expanding production capacity to cater to its customers’ ongoing decarbonization ambitions.