Alfa Laval: Energy Transition Opportunities in Focus at 2024 Capital Markets Day; Shares Expensive

We walked away from wide-moat Alfa Laval’s 2024 capital markets day confident that it is well positioned to capitalize on a range of energy transition-related growth opportunities, supporting medium-term earnings growth. Alfa Laval detailed a number of such opportunities for the group’s heat exchanger business, which include the industrial sector’s rising energy efficiency ambitions, residential heat pumps, as well as cooling and waste heat recovery applications in data centers. We view these opportunities as supportive of the energy division’s top-line growth in the present decade and key to achieving the group’s unchanged long-term financial targets. Certainly, the range of decarbonization themes where Alfa Laval’s heat transfer and liquids separation technologies find application is broad. Still, Alfa Laval shares screen expensively—trading at a 32% premium to our unchanged SEK 360 fair value estimate—with investors overly optimistic as to the order book opportunity that some of these secular themes are likely to represent in the current decade.