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On Monday, Citi analysts maintained a Neutral rating on Alfa Laval AB (ALFA:SS) (OTC: ALFVY) shares with a constant price target of SEK481.00. The decision follows Alfa Laval’s announcement of a binding put-option agreement to acquire the Fives Cryogenics business unit from Fives Group. The acquisition, valued at EUR 800 million on a cash and debt-free basis, will see the Fives Cryogenics business integrated into Alfa Laval’s Energy division.
The Fives Cryogenics business is focused on LNG and emerging applications such as hydrogen and carbon capture, areas that are attracting investor interest due to their growth potential in energy production and transportation. This strategic move by Alfa Laval aims to diversify its exposure beyond marine applications, where the market faces more perceived downside risks.
Despite the potential growth benefits, Citi analysts noted that the purchase multiples are relatively high compared to Alfa Laval’s own valuation. The implied enterprise value to sales (EV/Sales) and enterprise value to EBITA (EV/EBITA) ratios for the acquisition are estimated to be greater than 3.5x and over 20x, respectively. In contrast, Alfa Laval’s ratios are projected at 2.5x/2.4x EV/Sales and 15x/13x EV/EBITA for the years 2025 and 2026.
The analysis by Citi also suggests that the compound annual growth rate (CAGR) for the next two years for the Fives Cryogenics business is expected to be in the high single digits, which is not significantly higher than the current consensus for Alfa Laval’s Energy division. Without any cost synergies from the acquisition, Citi does not foresee any upgrades to Alfa Laval’s earnings per share (EPS).
The acquisition is a significant step for Alfa Laval as it continues to expand its portfolio in the energy sector, particularly in areas with growing demand for cleaner energy solutions. However, the financial impact of the acquisition, according to Citi’s analysis, appears to be neutral in terms of Alfa Laval’s stock valuation in the immediate term.
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