Barclays chooses Alfa Laval over Wartsila due to its growth potential

Alfa Laval AB

08/09/2023 10:37

** Barclays initiates coverage of engineering groups Swedish
Alfa Laval  ALFA.ST  with "overweight", and Finnish Wartsila
 WRT1V.HE  with "underweight", citing cyclical & circular
drivers for the former, and market misperceptions for the latter
    ** The biggest element that is being missed by the market,
and that also differentiates Alfa Laval from the majority of its
industrial peers, is further growth potential, the broker says  
 
    ** It points to favourable cyclical (oil & gas) and circular
exposures, expecting positive factors for margins, and cash
conversion set for a step-change improvement to 100%+ already in
H2   
    ** According to the brokerage, 2024 backlog already makes
consensus sales look too low, and sees that recovery in
transactional businesses could add to the upside
    ** In contrast, Barclays sees Wartsila facing identifiable
negative conditions to sales and margins, and expects about 20%
potential downside to consensus EBIT in 2024
    ** It says the biggest market misperceptions include
overvalued Energy Storage unit, revenue headwinds in Marine,
sales mix dilution in Energy, and free cash flow (FCF) headwind
from net working capital (NWC) 
    ** The broker views Wartsila as one of the materially
overvalued names across its coverage 
    ** Wartsila stock is down 6.7% 0902 GMT
    

 (Reporting by Marta Frackowiak)
 ((marta.frackowiak@thomsonreuters.com))