NIBE Q1'25 preview: Heat pump market warms slower than expected

We have updated our short- and medium-term forecasts for NIBE, in light of a slower-than-expected European heat pump market. While we still believe the market has largely bottomed out, driven by the normalization of inventories at the distribution level in most European markets, 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 but lower our target price to SEK 40.0 per share (SEK 44.0), mainly due to reduced estimates.

We expect the market remained challenging in Q1

NIBE will publish its Q1 results on Thursday, May 15th, at 8.00 am CEST. With our updated estimates, we expect NIBE’s Q1 revenue was 9,754 MSEK, roughly in line with consensus, reflecting a slight organic growth of some 3% (y/y). We expect low single-digit revenue growth across all business areas, with Climate Solutions and Stoves benefiting from normalized inventory levels, though still weighed down by soft consumer demand and sluggish construction activity. The Element division is expected to remain negatively affected by weak demand for consumer goods and weak deliveries of heat pump components. We estimate adjusted EBIT to increase from 516 MSEK in Q1’24 to 742 MSEK in Q1’25, slightly below consensus, supported by higher sales volumes and improved capacity utilization. Additionally, the ongoing cost-savings program, reflected in lower SG&A expenses, should support EBIT, although this will be partly offset by increased depreciation due to recent capacity expansions.

In the company’s upcoming report, we will watch closely for any comments regarding tariffs, the inventory situation, and the pricing landscape, where excess inventory at the manufacturing level could lead to downward pressure on prices.

We have adjusted our estimates, reflecting a slower recovery

In our view, it is increasingly evident that the market has bottomed out. Subsidy applications in Germany continue to trend positively, and Q1 heat pump sales are rebounding in countries such as Sweden and Germany, with growth of 38% and 35% respectively, albeit from low levels. While normalized inventory levels across most European distribution channels support this view, the pace of recovery has been slower than anticipated. Near-term challenges remain, including a weak economic environment, a sluggish new-build market, currency headwinds from a stronger SEK, and ongoing subsidy uncertainty. Adding to the uncertainty, the escalating trade conflict poses a clear downside risk to the global economic outlook. While we are not overly concerned about the direct impact on NIBE, given that most U.S. heat pump production is localized, the indirect effects, including weaker economic growth and declining consumer confidence, warrant a more cautious stance.

In light of these factors, we have revised our EPS estimates for 2024–2027 downward by approximately 7–10%.

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 outlook is slower, and in the current uncertain macroeconomic situation, overstretching multiples seems unwarranted. Hence, we continue on the sidelines and wait for a better risk/reward.