Nibe Industrier surges on better-than-feared Q2 results

Investing.com -- Nibe Industrier AB (ST:NIBEb) shares jumped on Friday following its second quarter results. 

Nibe Industrier surged 9.9% at 4:12 am (0812 GMT) to SEK 52.1. 

The results, although weak, managed to surpass market expectations. "While the development is still clearly weak, given negative positioning (high short interest), this could prompt some relief, as numbers are not worse than feared," said analysts at Citi Research in a note. 

They highlighted a small beat to consensus EBIT, which played a key role in the positive market reaction.

Nibe reported second quarter results that were slightly ahead of consensus expectations. Revenues came in 1% above Visible Alpha (VA) consensus, while underlying EBIT exceeded expectations by 5%, with a 30 basis point beat on the EBIT margin, which stood at 6.7%. 

Despite these beats, the results were below Citi's own estimates. However, the fact that the results were ahead of consensus expectations, which were set low, provided some reassurance to investors.

Divisionally, the company’s all-important Climate Solutions business reported revenues 2% ahead of VA consensus, with a 50 basis point beat on margins at 7.8%. 

The Element division, however, underperformed with revenues 1% below consensus and a margin miss of 100 basis points, settling at 5.0%. 

The Stoves division was particularly weak, with revenues 15% below consensus and a slightly lossmaking quarter, with a -0.4% margin compared to the expected 3.4%.

A significant tax charge in Q2 led to an EPS that missed by 28%, even though EBIT was slightly better than expected. 

On the cash flow front, Nibe experienced a small outflow from working capital amounting to SEK 374 million, contrary to the expected SEK 1.1 billion cash inflow. While inventories did decrease by SEK 0.7 billion, this reduction was less than anticipated by the market.

The company reiterated its expectation for a gradual improvement in demand during the second half of the year, as distributor-level inventories normalize. Furthermore, Nibe remains committed to achieving its historical margin levels across divisions by 2025.

Citi Research values Nibe at SEK 49 per share, based on a weighted average of discounted cash flow (DCF) analysis and a target 2025 EV/EBIT multiple of 20x, aligning with Nibe’s historical average. 

The analysts identified several risks that could impact their valuation, including political risks related to the dependency on subsidies for heat pumps, technological risks if alternative low-carbon technologies outpace Nibe's offerings, macroeconomic risks affecting consumer spending and construction trends, and competitive risks that could impact market share and pricing. 

Conversely, the analysts noted that the opposite of these risks could provide upside to their investment case and target price.