We believe that NIBE delivered a solid start to the year, with the Q1 report coming in broadly in line with our expectations. While the Stoves segment remained a drag and the near-term outlook is somewhat softer than we had anticipated, the underlying organic growth and margins within the key Climate Solutions business area continued to gradually recover. In addition, European heat pump market data continues to indicate improving demand trends, supporting our estimates for a continued recovery. Medium-term valuation multiples (2026-2027: P/E 21-24x and EV/EBIT: 16-19x) are below the company’s long-term medians and appear attractive in our view. Therefore, we believe the company’s interesting long-term investment story can be accessed with a good risk/reward ratio at the current valuation, and we reiterate our Accumulate recommendation and target price of SEK 44 per share.

Climate Solutions powers the recovery

In our view, NIBE’s Q1 report showed overall clear signs that the turnaround is progressing in the right direction. Once again, Climate Solutions stood out on the positive side, with FX-adj. organic growth of 10.3%, slightly above our expectations. The organic growth was mainly driven by a recovery in the underlying European heat pump market, while the US market was somewhat slower following the removal of subsidies in private homes. Revenue growth in the Element business area came in slightly below our expectations, with FX-adjusted organic growth of 6.7%, while the Stoves segment disappointed again with FX-adjusted revenue growth of -2%, reflecting weak consumer confidence, particularly in Europe.

From a profitability perspective, NIBE’s EBIT rose 11% to 868 MSEK, also roughly in line with our estimates. Climate Solutions' Q1 operating margin slightly exceeded our expectations, driven by increased sales volumes and sustained effective cost control. The Element business area's operating margin, however, was marginally below our estimates. In contrast, Stoves reported a significantly lower-than-expected EBIT margin of just 4.4% due to lower sales volumes and negative effect from tariffs.

We have made only minor revisions to our earnings estimates on group level

Overall, our group-level revenue estimates remain broadly unchanged. We continue to expect solid organic growth of 5% in 2026, accelerating to 8% in 2027, supported by recovering consumer demand, a gradual rebound in new-build activity, and structural growth in energy-efficient heating. Following NIBE’s more cautious short-term margin outlook for Stoves, we have lowered our profitability estimates for the business area. However, stronger-than-expected profitability in Climate Solutions and improving heat pump market trends increase our confidence in the margin trajectory, and we expect EBIT to reach around 14% in the business area in 2026. Given the size of Climate Solutions and our largely unchanged estimates for Element, these factors more than offset weaker profitability in Stoves, leading us to slightly raise our earnings estimates at the group level for the coming years.

We reiterate our Accumulate Recommendation

We forecast good earnings growth in the coming years, driven by solid volume growth and a gradual margin increase. Although we expect some downward pressure on LTM earnings multiples (adj. P/E LTM: 31x), we believe the expected return is higher than the required return. In addition, the DCF model and peer valuation paint a similar picture. We therefore consider the risk/reward ratio good at the current share price level.