Valuation of Alfa Laval

Victor Nilsson & Olle Svensson

Student thesis: Master thesis


The purpose of the report has been to find the fair value per share of the industrial company Alfa Laval as of 31st of March 2012. The writers have taken the role as investment analysts, solely using external information. The world is currently undergoing a transforming phase where financial, political, environmental and societal forces are interconnecting and changing the rules of the game for many companies. This transformation is eminently influencing Alfa Laval as a multinational company producing capital goods for numerous industries, e.g. within transportation, oil refinery, food and drinks processing, and the energy sector. The report has, in order to perform a fundamental valuation of Alfa Laval, applied three strategic analytical frameworks: the PEST-model to analyse the macro-economy, the Porter’s Five Forces-framework to analyse the industry’s characteristics, and the SWOT-framework to conclude the findings from the two previous frameworks. The strategic assessment illustrated, despite the current turmoil, a rather optimistic outlook for Alfa Laval, mostly driven by a strong market position, proactive R&D focus, a promising product portfolio, bright projections for several market segments, and valuable service and distribution networks. The report continued with a comprehensive analysis of Alfa Laval’s current and historical financial performance. This was undertaken by comparing Alfa Laval’s performance with its main competitor’s, GEA. The financial analysis concluded that Alfa Laval has expanded immensely the last decade, with doubled net sales. However, the expansion has resulted in a steep increase of assets, which in turn has caused a decreasing ATO and a lower profitability. Alfa Laval’s financial situation is nevertheless considered as being strong. The insight from the analytical chapters resulted in an assessment of budgeting and forecasting. Subsequently, the report applied two established valuation models: the DCF and EVA model. The computed value per share was set to SEK 140.18, to be compared with the market value of SEK 136.10 per share. To test the accuracy of, and critically assess, the report’s results a sensitivity analysis and multiple comparisons were undertaken. The sensitivity analysis showed that the valuation was sensitive to changes in PM, ATO, beta and MRP, and less sensitive to changes in cost of debt and cost of operating leases. From the multiple comparisons it was concluded that Alfa Laval was valued over its peer group and that the report’s estimations were slightly higher than Bloomberg’s. Finally, it was concluded that the estimated value of SEK 140.18 was solid, implying that the share is slightly undervalued. Nevertheless, the final investment recommendation was set to hold due to the slight difference from the market value and because of the estimations sensitivity to underlying factors.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2012
Number of pages158