We Expect Alfa Laval’s Profitability to Rebound Following Disappointing Q3 Results; FVE Maintained

The market is unsurprisingly disappointed after wide-moat Alfa Laval reported its lowest quarterly EBIT margin since 2017, which saw operating profit grow a mere 4% despite revenue growing 28%. The marine segment was the biggest detractor to results, reporting a 42% decline in operating profit. Nevertheless, we reiterate our SEK 280 fair value estimate and are confident that management will be able to restore profitability to levels that we have become accustomed to. Our optimism for a rebound in profitability is based on the announcement of a SEK 200 million restructuring program to address underperforming profitability in the marine segment, and secondly, the seasonality effect that impacted profitability in the food and water segment and will be less pronounced in the fourth quarter. We view shares as fairly valued.