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Important to do the right comparison, there are always significant revisions Clarksons has released an initial number for ship orders in August, which will most likely be revised upwards. So far, 51 new vessel contracts have been registered in August versus Clarksons'' latest number of 165 vessels for the same month last year. Clarksons reports that 899 vessels have been ordered YTD, versus its latest number of 1,495 vessels in the corresponding period last year. However, we usually see significant revisions to Clarksons'' ship order data. At this point last year, less than 1,100 vessels had been registered YTD. Looking at unrevised data, this year''s ship orders are trending 18% below last year''s level. Limited downside risk to 2023e due to mix and a large ship order backlog Despite ship orders being down y/y, there should be limited downside risk to our and consensus marine estimates as we see positive mix effects with increasing demand for alternative fuelled vessels (LNG etc.), which will contribute to Alfa Laval''s order intake. In addition, lead times are longer and some of the ship orders placed in 2021 will likely not convert into order intake for Alfa Laval until 2023 as the ship order backlog is at its highest level since 2016. On top of that, we see supportive mix effects with increasing demand for alternative fuelled vessels (LNG etc.), which will contribute positively to Alfa Laval''s order intake. Weaker demand for ballast water treatment systems (BWTS) could impact orders and sales next year, but the impact on earnings should be limited as it is a low-margin business. A large backlog and the energy transition should drive earnings growth in 2023e We maintain our Outperform rating as we see potential for solid earnings growth next year, partly driven by the Energy transition. Our target price of SEK335 is based on a SOTP-valuation corresponding to 15x EV/EBITA 2023e. Higher energy costs and a looming recession are two risks to our...
Alfa Laval AB Alfa Laval AB
Alfa Laval''s Q2 results surprised positively on most lines. It was encouraging to see all three divisions report order intake 10% above Infront consensus, partly driven by Alfa Laval''s service business, which grew organically by 20% on a group level. Alfa Laval''s guidance of somewhat lower demand seems to be seasonality related rather than any underlying weakness. We maintain Outperform. Strong numbers delivered in Q2 and a large backlog should support sales in H2 Alfa Laval''s record order intake of SEK 14.4bn exceeded Infront consensus estimate by 12% as demand remained strong in most end markets. Sales came in 4% above consensus and adjusted EBITA was 9% ahead of consensus as the margin of 16.5% was 90bp better than expected. Alfa Laval''s backlog stands at SEK 29.5bn and with support from the Desmet acquisition, we expect sales in 2022 to exceed SEK 50bn (pre-Q2 consensus was at SEK 48.4bn). We leave our estimates unchanged Due to macro uncertainties, we make no larger changes to our estimates despite Alfa''s strong performance in Q2. We look forward to seeing what demand for new applications in areas like hydrogen, carbon capture and decarbonisation of the merchant fleet will be, as it picked up in Q2. In a recent sector note, we pointed out that we believe Alfa Laval is well positioned to benefit from the Energy transition in the coming years. Margins should improve next year as backlog pricing is improving. We forecast adjusted EBITA growth of 16% in 2023. Performance and valuation Alfa Laval has performed in line with the Sector YTD. We maintain our Outperform rating as we see potential for strong earnings growth in the coming years, partly driven by the Energy transition. We increase our target price to SEK 335 (from SEK 330), which is based on a SOTP-valuation corresponding to 15x EV/EBITA 2023E.
Alfa Laval''s margins suffered from mix effect and backlog pricing in Q1 and that will continue to impact results in Q2, even though we expect less of an impact in this quarter. Longer term, we expect margins to improve and earnings to grow, supported by a large backlog. We maintain our Outperform rating. Q2''22 results on July 20th We think order intake will remain strong in Q2. We forecast orders of SEK 13bn and we expect Alfa Laval to guide for relatively unchanged demand in the near term. Alfa Laval has most likely continued to struggle with supply chain issues, having an impact on both sales and earnings, but we are expecting sequential improvements in the Marine division. For the group, we forecast sales of SEK 11.4bn and adjusted EBITA of SEK 1,795m, corresponding to a margin of 15.7%. We expect Alfa Laval will be able to deliver results close to Visible Alpha consensus estimates. We leave our estimates relatively unchanged We have updated our estimates for recent trading and FX. The Swedish krona has been weak and offset most of our organic downgrades. In total, we have lowered adjusted EBITA estimates by around 1% for 2023-2024. Performance and valuation We think Alfa Laval''s operational performance will improve in Q2, which is a necessity for the share price to perform well. We maintain our Outperform rating as we see potential for strong earnings growth in the coming years, partly driven by the energy transition. We lower our target price to SEK 330 (from SEK 355), which is based on a SOTP-valuation corresponding to 15x EV/EBITA 2023E, down from 16x previously.
Headline ship orders remain weak... Clarksons has released an initial number for ship orders in May, which will most likely be revised upwards. So far, 57 new vessel contracts have been registered in May, which can be compared with Clarksons'' latest number of 185 vessels in April last year. Clarksons reports that 488 vessels have been ordered YTD, versus Clarksons'' latest number of 908 vessels in the corresponding period last year. ...but we are likely to see meaningful revisions... We usually see significant revisions to Clarksons'' ship order data. Looking at unrevised data, this year''s ship orders are trending ~20% below last year''s level. At this point last year, less than 600 vessels had been registered YTD. The value for this year''s ship orders stands at USD42bn versus Clarksons'' latest number of USD52bn in the corresponding period last year (-19% y/y). This year''s number will most likely be revised upwards and Alfa Laval''s marine equipment orders tend to follow the value of ship orders. ...and mix should improve following increasing demand for LNG fuelled vessels Alternative fuels are gaining traction. In Q1 2022, there was a record share of alternative fuel capable orders (61% of total GT). This is likely to have a positive impact on Alfa Laval''s order intake as its value opportunity is higher on alternative fuelled vessels. Limited downside risk to consensus Q2 numbers At this point, we expect Alfa''s Q2 results to be relatively in line with what the company has guided for despite severe lockdowns in China. We do not see any material downside risk to consensus estimates and expect the Marine division''s EBIT margin to improve somewhat from the weak Q1 level. We maintain Outperform.
Strong order intake beats expectations... Alfa Laval''s net order intake of SEK 13.3bn was 5% stronger than expected despite cancellations of SEK 600m impacting net orders negatively. The company expects demand to weaken somewhat in Q2 and uncertainty around the future demand trajectory increased. Alfa Laval was impacted by supply chain issues and it estimates that revenue was adversely impacted by around SEK 600m due to delivery issues. Alfa Laval''s 2022 sales bridge implies in our view that Alfa Laval should be able to generate sales of close to SEK 50bn in 2022 before the consolidation of Desmet. ...but the underlying margin miss is concerning Alfa Laval''s adjusted EBITA missed consensus by 1%. However, it came in ~12% below consensus if we exclude a positive revaluation effect. The underlying margin was almost 200bp below consensus estimate due to a substantial margin miss of 500bp in the Marine division. The margin miss was explained by several different factors and our understanding is that the Marine division''s margin should gradually improve from here. We have lowered our 2023 Adjusted EBITA estimate by 6% mainly because of lowered margin assumptions. We model resilient margins for Energy and Food and Water, but Marine''s weak Q1 margin increased uncertainty also for the other divisions. We maintain Outperform The stock was down by 12% yesterday and it has performed fairly in line with the Sector YTD. Alfa''s execution in the quarter was poor and we have lowered our adjusted EBITA estimate by 6%. We maintain our Outperform rating, but Alfa''s operational performance needs improvement for this to work. We lower our target price to SEK 355 (from SEK 380), which is based on a SOTP-valuation corresponding to 16X EV/EBITA 2023E.
Ship orders are weakening, but likely not as much as at first glance Last week, Clarksons reported that 41 ships had been ordered in February, substantially down from the 187 Clarksons reported for February last year. At first glance, it appears that ship orders are down 57% y/y in Jan-Feb. However, when diving beneath the surface, our analysis (based on unrevised data) indicates that YTD ship orders are only down 15% compared to 2021. Alfa Laval should benefit from a positive ship mix Alfa Laval''s value opportunity per ship order depends on the type of vessel. The fewer ship orders in YTD 2022 compared to 2021 are in part offset by a positive ship mix. Based on our calculation, Alfa''s average value opportunity per ship, excluding the LNG effect explained below, stands at SEK 13.1m in YTD 2022 compared to SEK 12.2m in YTD 2021. However, as fewer ships have been ordered this year, the total value opportunity excluding the LNG effect is down by 8%. Increasing demand for LNG fuelled vessels adds incremental value opportunity for Alfa According to Alfa Laval, vessels with LNG fuelled propulsion add an incremental value opportunity by upwards of USD 1.5m per vessel. Clarksons'' data indicates that vessels ordered with LNG fuel capability account for 50% of ship orders in YTD 2022, which can be compared to 15% during the same period last year. Alfa''s incremental value opportunity associated with the larger proportion of vessels ordered with LNG capability more than offsets the fewer number of ship orders. Alfa''s average value opportunity per ship, including the LNG effect, is SEK 18.4m in YTD 2022, which is comparable to SEK 13.7m in YTD 2021. Alfa''s unrevised total value opportunity from ship orders stands at SEK 3.2bn YTD, a 15% increase compared to SEK 2.8bn in YTD last year. We would add the caveat that the timing of when Alfa Laval''s LNG equipment will be ordered is uncertain but conclude that underlying ship order trends remain solid from...
A leader in heat transfer, separation and fluid handling products for a range of industries, Alfa has had a rough YTD, falling c.20%. We analyse its end-markets in depth and explore its green tech credentials, to find a well-founded company set to bounce back in 2022. Launch with Outperform. Marine: buoyant not sinking On the surface it seems ship orders are weakening again; we dig under headline figures to show ship orders YTD are off to their strongest start since 2014. Additionally, it appears 50% of the vessels ordered YTD will be LNG-fuel ready, boosting a large incremental market for Alfa. Longer term, increasing fleet ages and pressure to replace emissions-heavy ships should be a support. Energy: hot prospects, cool runnings Alfa''s HVAC and Refrigeration segment (40% of Energy division) is exposed to a building renovation wave triggered by the EU''s Green Deal as its products specifically target energy efficiency. Growth for the division will also come from an OandG capex expansion we forecast at 15-20% in 2022. Food and Water: Not as good as 2021... but still good After a bumper 2021, orders should increase in 2022, albeit moderating somewhat. Trends in alternative biofuels, water and water and pharma and biotech are all supportive for the long term. Above consensus with 50% EPS growth from 2021 to 2023e We forecast orders to beat consensus by more than 5% in 2022 and we are 6% ahead of consensus adj. EBITA estimates for 2023. We model EPS to grow by 50% between 2021 and 2023, placing Alfa at the upper end of the sector. Share buybacks are another potential EPS driver. Initiate with Outperform and a target price of SEK 350 We initiate coverage on Alfa Laval with an Outperform rating. Our target price of SEK 350 is based on 15x EV/EBITA ''23E; a multiple in line with today''s 12M forward-looking multiple. We anticipate earnings growth will be the driver of strong share price performance from here.
Alfa Laval’s Q3 figures were weak and in line with our expectations. Despite Net sales and adj. EBITA being lower by 8% yoy, margins largely remained flat showing that the cost programme is bearing fruit.
Alfa Laval AB
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