NIBE Q1'25: We are waiting for better entry opportunities

NIBE’s Q1 result was operationally largely in line with our expectations, and we made only minor upside revisions to our short-term earnings estimates. The company's outlook and market indicators continue to show signs of a recovery in the destocking situation. However, a meaningful recovery is likely to take time to materialize due to a slow recovery in consumer confidence and purchasing power, as well as in the new-build market. In our view, short-term drivers remain weak, and the stock is already sufficiently priced in for high earnings growth (2025e P/E: 31x). As a result, we reiterate our Reduce recommendation and our target price to SEK 40.0 per share.

Q1 broadly in line with expectations

NIBE’s Q1 organic revenue increased by a modest 1.7% year-on-year to ~9.7 BNSEK, roughly in line with our and consensus forecasts. Revenue in Climate Solutions met our estimates with a 3% year-on-year increase to 6.0 BNSEK. As expected, inventory levels in the distribution chain continued to normalize in the European market, allowing consumer demand to more clearly reach the manufacturer level. The Element business area (2.9 BNSEK, 6% y/y) slightly exceeded our expectations, due to relatively stable demand, while Stoves (0.9 BNSEK, -12%) underperformed our expectations, driven by declining demand in Europe.

NIBE’s Q1 adj. EBIT increased by 52% to 782 MSEK, above our expectations, primarily due to better-than-expected profitability in Climate Solutions and Element, while Stove’s adjusted EBIT were below our expectations. Overall, given the challenging operating environment, we believe the profitability level (Q1’25 adj. EBIT margin: 8.1%) was stable, supported by the cost savings program and slightly increasing sales volumes.

We make only minor adjustments to estimates

In our view, given the Q1 figures and recent market data, it is increasingly evident that the market has bottomed out. While normalized inventory levels across most European distribution channels support this view, we still expect the pace of recovery to be slow. In the near term, headwinds persist, including a weak economic environment, a sluggish new-build market, currency headwinds from a strengthening SEK, and continued subsidy uncertainty in some markets. While some volume growth and cost-saving measures are expected to support margins, these benefits will be partially offset by increased depreciation resulting from recent capacity investments. Moreover, a meaningful margin recovery would require a stronger rebound in volumes than was observed in the latest quarter, something that remains uncertain due to the continued weakness in residential markets. Additionally, rising competition and capacity expansion outpacing demand raise the risk of structural overcapacity and potential margin pressure.

Given these dynamics, we maintain our revenue estimates largely unchanged but increase our EBIT estimates slightly, reflecting better-than-expected profitability in Q1. Even so, our forecasts remain below the company’s historical long-term margin levels, and we still view its ambition to reach historical profitability levels in 2025 as optimistic.

We continue to stay on the sidelines

NIBE’s valuation level has historically been high (last 10y median P/E ~26x) due to its high quality, steady profit growth, and low-interest-rate environment. In our view, the valuation multiples are high in absolute terms (2025e P/E ~31x), and the DCF is also below the current share price. NIBE’s track record of profitable growth is convincing, but the earnings growth outlook is slower, and in the current uncertain macroeconomic situation, overstretching multiples seems unwarranted. Hence, we continue to stay on the sidelines and wait for a better risk/reward.