NIBE Industries Q3 on Wednesday: With growth towards calmer markets

NIBE will report its Q3 results on Wednesday at 8.00 am CET. We anticipate good growth in revenue compared to the corresponding quarter last year, primarily driven by the Climate Solutions business area and a strong order backlog. Additionally, we foresee a continued recovery from supply chain disruptions, which is expected to enhance capacity utilization and, consequently, increase profitability. Due to challenges such as a slower construction market, stabilized energy prices, high inflation, and rising interest rates impacting consumer demand, our focus remains on order intake and demand-related information as the key highlights in the upcoming Q3 report.

We expect a strong order backlog to hold up sales

We expect NIBE’s Q3 revenue to have increased 25% to SEK 12.5 billion, slightly above consensus (SEK 11.9 billion). We assume that growth was primarily organic, with some 6-7 percentage points of acquired growth driven mainly by the acquisition of Dutch Climate For Life/ Dutch Climate For Life acquisition. Within the business areas, we project Climate Solutions to exhibit the highest growth, driven by a general good demand, ongoing enhancements in delivery capacity, and gradually normalizing delivery times. This expansion, combined with a strong order backlog, is positioned to act as the driving force behind revenue growth. In the Stoves business, we anticipate a decline in demand to more typical levels seen before the demand spike from the 2022 energy crisis. However, given the substantial backlogs within the industry sector, we anticipate stable organic growth in the quarter. Meanwhile, we expect that growth was relatively flat for the Element business area due to sustained low demand in consumer goods and the semiconductor sector.

Higher sales volumes support increased profitability

While we anticipate an increase in fixed costs associated with expanding production capacity across all business areas and acquisition, we expect gross margins to have improved. This development is attributed to higher sales volumes, economies of scale, and improved capacity utilization. As a result, we project EBIT to increase 35% compared to the same quarter last year, which is higher than the consensus (24%). We expect Climate Solutions business area to have been the biggest profit driver, while we anticipate a more subdued development in Stoves and Element, influenced by shifts in demand across various product segments. Going further down the income statement, we expect financial costs to have increased from last year due to higher interest rates and new debt from the Climate For Life acquisition. NIBE's gearing is still quite modest and we expect adjusted EPS to have increased to SEK 0.71 (Q3'22: SEK 0.55)

We focus on how NIBE navigates the short-term slowdown in a long-term growth market

Since the release of our initiation of coverage report in September, NIBE's stock has experienced a slight decline. This has been influenced by a stream of negative news, including lower energy prices and uncertainties surrounding certain subsidies. The prevailing sentiment suggests a potential slowdown in the growth of heat pumps in the upcoming years, attributed to lower electricity prices and higher interest rates. While we acknowledge these factors, we maintain our belief in the energy efficiency demand drivers supporting the industry in the long run. It's worth noting that a thriving heat pump market tends to attract new players and heighten competition. Consequently, we remain vigilant, closely monitoring any indications of NIBE losing market share to competitors and assessing the potential impact on pricing power over time. In the Q3 report we look for any information on this from the company. NIBE does not provide a short-term guidance.