Alfa Laval: 9% FVE Lift to SEK 340 on Analyst Transfer; Restructuring Delivers Profit Margin Benefit

We raise our fair value estimate for Alfa Laval by 9% to SEK 340 following a transfer of analyst. Improved profitability in Alfa Laval’s energy segment—the result of operating leverage benefits on strong order intake for the segment and restructuring initiatives—is the dominant driver of our revised fair value estimate. Consequently, we expect stronger earnings growth over the coming decade than we’d previously credited and forecast a 10-year EBIT CAGR of 9%, up from 7% previously. We’ve also raised our cost of capital assumption to 8.6%—up from 8.0% previously—partly offsetting the uplift our improved earnings outlook confers on our fair value estimate. Elsewhere, we maintain our wide-moat, Medium Uncertainty, and standard capital allocation ratings for the stock. Alfa Laval shares trade at an approximate 7% premium to our revised fair value estimate.