NIBE Q4'24: We remain on the sidelines, waiting for better risk/reward

NIBE’s Q4 result was operationally slightly above our expectations, and we made minor upside revisions to our short- and medium-term estimates. The company's outlook and market indicators continue to show signs of a recovery in the destocking situation. However, the recovery will likely be slow, as at least the first half of this year will remain challenging, due to continued excess inventories in some markets and a slow recovery in consumer confidence and purchasing power as well as in the new-construction market. Additionally, while volume growth and cost-cutting efforts are expected to support margins, we anticipate continued headwinds from high inventory and pricing risks. In our view, given the ongoing uncertainties in the operating environment, the stock is already sufficiently priced for earnings growth (2025e P/E: 29x). As a result, we reiterate our Reduce recommendation with a slightly higher target price of SEK 44.0 per share (prev. SEK 42.0), due to a slight increase in estimates and in line with our DCF.

Q4 showed continued signs of recovery

NIBE’s Q4 revenue decreased by 5.4% year-on-year (5.7% organically) to approximately 11.0 BNSEK, slightly above both our and consensus forecasts. While revenue from the Climate Solutions and Element was largely in line with our expectations, Stoves exceeded our estimates and returned to a more typical seasonal pattern. NIBE’s Q4 EBIT increased by 5% year-on-year, mainly due to a one-off positive effect of 597 MSEK from acquisition-related revaluations. Adjusted for this and one-off costs related to the savings program, EBIT declined by ~29% to around 1.1 BNSEK, slightly above both our and consensus forecasts, driven mainly by better-than-expected profitability in Stoves. Despite the challenging operating environment, we believe profitability (Q4’24 adjusted EBIT margin: 10.2%) was stable, with the cost-savings program helping to mitigate the negative impact of lower sales volumes. For FY24, adj. EPS declined to SEK 0.80 from SEK 2.42 in 2023, resulting in a significant dividend cut from SEK 0.65 to SEK 0.30.

Outlook remains largely unchanged

In the Q4 report, NIBE largely reaffirmed its outlook from the previous quarter. NIBE assesses that inventories in its key distribution chains have returned to acceptable levels, enabling demand to reach manufacturers. The company expects these factors, along with the fully implemented action plan, to help return operating margins to historical levels across its business areas by 2025. While there are emerging signs of a gradual market recovery, excess heat pump inventories persist, and declining interest rates are unlikely to significantly boost consumer purchasing power and confidence until at least H2’25. Given these dynamics, we have kept our revenue estimates mostly unchanged, with slightly higher growth expectations for Stoves following its quicker-than-expected recovery last quarter. Regarding operating profit, apart from the higher volume growth for Stoves which slightly boosts overall EBIT, we have largely maintained our EBIT estimates. In our view, volume growth and cost cutting should support margins, but we believe NIBE’s goal of returning to historical margins by 2025 seems relatively ambitious, considering the pricing risks.

Expected return still insufficient

2024 was a challenging year, with earnings well below potential, due to weak market conditions. Looking ahead, if the market environment improves and the earnings recovery we forecast materializes, the estimated 2025 valuation multiples (P/E: 29x and EV/EBIT: 22x) fall at the upper end of our acceptable range and exceed the company's historical long-term medians. The DCF is also in line with the current share price, implying a limited upside to the valuation. Overall, we believe that the stock is fairly priced for an earnings turnaround and that a larger upside for the stock would require a faster-than-expected adoption of heat pumps, along with an easing of pricing concerns.