NIBE AB - clean heat play

 NIBE—replacing fossil fuels

The Swedish manufacturer with a range of energy-efficient appliances, the most important being heat pumps but also exposed to semiconductor elements and stoves.

The company is partly dependent on the Euro regulations of moving to clean heating and not fossil fuel dependent. Gas is widely used for boilers. The drive has political and environmental backing but is constrained by the enormous cost. Almost every European country has a system of subsidies which typically subsidise the cost of a heat pump 15ke with 7ke. Over hundreds of thousands of units, this is a large amount. The biggest countries are France Uk and Germany but almost all participate. Interestingly Germany recently stopped or reduced the subsidies due to budgetary concerns. The outlook for governments to continue to support subsidies is critical to the business case.

The financials of the business show a well-run company. ROE’s have averaged 14.5% and revenue growth 14% over the last 9 years, in line with equity and TA growth. GM has been around 34% and very stable indicating price leverage. The company is not afraid to take on debt, used for acquisitions and is currently 2X but has and will possibly go higher.

McVivens indicates a fair value of 15x, with CoC 10%, 84% reinvested, Roe 16%.

EPS regression is very stable at a growth 93% but is 8% above the trend. Amortisation 85 of NPAT.

Competitors in heat pumps are large being Carrier, Daikan, Mitsubishi and a Chinese firm Midea. Reviews seem to support Nibe as a quality leader but strong competition does exist. NIBE is very strong in Scandinavia, Europe as well, and are growing in NA.

The concerns for the company lately have been, inventories are too high in the channel, interest rates slowing demand, and patchy Government support. A cost out program has been launched benefits are expected in 2025. the bull case is that heat pump demand is expected to cagr at 18%ps 2024-32, i suspect dependent on government subsidies.

At the current price of $4.68 the stock is on LTM PE 22X, the lowest it has been for years. Of the operating issues, the rebate issues are the most serious and a strong view is required on these to take a position in the stock.

The present view is needs to be lower given the risk and the manufacturing dynamics, maybe high tens PE. 


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