NIBE: Still waiting for a more compelling entry point

In our last update following the Q2 report, we reiterated our Sell recommendation for NIBE, and since then, the share price has fallen by around -20%. As a result, we believe that the valuation has come down to more neutral levels. However, at current valuation levels, we believe that the total expected return is roughly in line with our required return. As a result, we turn to a Reduce recommendation but reiterate our target price of SEK 40 per share.

Investment case dependent on a volume rebound

Over its long history, NIBE has grown to be an international group within heating solutions and energy control. In our view, its strong track record of long-term investments in sustainable product development has built deep expertise and industry know-how. This foundation has enabled NIBE to consistently grow its market share, both organically and through a disciplined acquisition strategy. In our view, NIBE’s investment case relies on continued investments in product development and strategic acquisitions to support long-term structural growth in energy-efficient heating solutions and drive a sales-led margin recovery. While the biggest positive driver for NIBE is sales growth, the main near-term risks to achieving this include intensified competition, regulatory uncertainty around long-term subsidies, and a weak end-consumer demand.

We have kept our estimates intact

We continue to anticipate a slow recovery pace, as evidenced in H1’25. While NIBE’s performance and market indicators continue to show signs of a recovery, near-term challenges persist, driven by a weak consumer demand, a sluggish new-build market, currency headwinds from a strengthening SEK, and ongoing subsidy uncertainty in certain markets. For 2025, we estimate organic growth of around 3%, primarily driven by the Climate Solutions business area, which we expect to benefit from a gradual recovery in the European heat pump market. However, we anticipate that the smallest business area, Stoves, will remain a drag on growth due to weak consumer demand and continued softness in the new construction market. Meanwhile, we expect the Element business to deliver modest organic growth. Looking ahead to 2026–2027, we forecast organic revenue growth of approximately 6–7%, supported by a broader recovery in the macroeconomic environment, improved consumer confidence, and increasing demand for energy-efficient heating solutions.

We believe margins will be supported by a combination of volume growth and effective operational cost control, though this will be partially offset by increased depreciation from recent capacity investments. However, a significant margin recovery hinges on a stronger volume rebound than seen in H1’25, which remains uncertain given the continued weakness in residential markets. Additionally, increasing competition and capacity expansion outpacing demand raises the risk of structural overcapacity and potential margin pressure. Considering these dynamics and NIBE's H1’25 performance, we still regard the ambition to return to historical margins across all three business areas by 2025 as optimistic.

High earnings growth is already priced into the valuation

We believe that NIBE’s share is expensive on actual earnings basis (adj. P/E LTM Q2’25: 33x). However, the earnings growth driver is currently turning in the right direction, but the starting level is low, and the growth rate is unclear. If the earnings growth that we estimate materializes, the company’s P/E for 2025 is 28x and EV/EBIT 21x, which we consider to be quite neutral. In our view, attractive valuation signals can only be found in 2026 multiples (2026e: P/E: 22x), even though the forecast includes substantial and still uncertain earnings improvements. The DCF is also not sufficiently higher than the current share price for us to view the risk/reward as good. Overall, we therefore believe the stock is fairly priced for an earnings turnaround.