We believe that NIBE’s Q2 report was strong, which exceeded our expectations on most of the key points, and we have therefore lifted our EBIT estimates by ~3% on average for 2026-2028e. In our view, the volume-led earnings growth seen over the past ~1.5 years, together with management's confident tone around a stronger H2 and continued positive underlying market data, reinforces our conviction that the recovery is sustainable. We also believe NIBE's forward-looking earnings multiples remain acceptable given the company's growth and return on capital potential. As a result, we reiterate our Accumulate recommendation and raise our target price to SEK 47 per share (prev. SEK 44 per share) on the back of increased estimates.

Volumes and margins both surprised on the upside

NIBE's Q2 revenue was solid and reached 10.8 BSEK, up 7.6% (8.7% FX-adjusted organic), ahead of both our and consensus forecasts. In our view, Climate Solutions once again stood out on the positive side, driven by strong European heat pump sales and solid US commercial HVAC demand, which more than offset weaker US residential sales after subsidy removal. More surprising to us, however, was the strength in Element, where demand from semiconductor and heat pump industries drove the beat. While Q2 revenue in Stoves also topped our low expectations, the business area continues to struggle with increasing sales growth, mainly due to a persistently weak European market. On margins, the print was clearly better than we had anticipated. Gross margin rose to 32.1% (30.2%) on higher volumes, better utilization and productivity. Combined with good operational cost control, this lifted operating profit ~30% to 1.2 BSEK, above both our and consensus forecasts. We see the 11.4% EBIT margin as a strong signal that the volume-led margin recovery is taking hold, with only Stoves lagging on weak volumes and tariff headwinds.

Attractive growth with margin upside

While NIBE provides no numerical guidance, management's tone struck us as clearly confident. According to our assessment, the recovery appears sustainable, the traditional seasonal pattern has been re-established, and a stronger H2 is expected. In our view, this is supported by positive European market data, and given management's fairly good visibility at this point, we read it as a positive signal that the company expects the volume-led margin recovery to continue. That said, near-term headwinds persist, including a sluggish new-build market and subsidy uncertainties in certain markets.

On the back of the Q2 beat, we have lifted our EBIT estimates by ~3% on average for 2026-2028e, with Climate Solutions and Element leading the way. For 2026, we expect Climate Solutions to grow ~7% at an EBIT margin slightly above 14% (historical range 13-15%), and Element to grow ~8% at slightly below 9% (range 8-11%). Stoves, in our view, remains a drag, weighed down by both the weak European market and tariff headwinds. In the mid-to long term, we expect fairly high annual growth of ~6-8%, which should support margin expansion towards around 13%.

We reiterate our Accumulate recommendation

Based on our estimates for 2026 and 2027, NIBE’s adjusted P/E ratios are 25x and 21x, while the corresponding EV/EBIT ratios are 19x and 16x. Next year's multiples, which are gradually gaining more weight, are well below the company’s 10-year medians. Correspondingly, the 12-month expected return, consisting of solid earnings growth, a downside in multiples (Q2’26 LTM P/E ~30x), and a dividend yield of around 1-2%, exceeds our required return. The share also has an upside relative to our DCF value. Thus, we believe the overall valuation picture continues to support a positive view on the stock over a 12-month horizon.