Europe is currently facing an oversupply of heat pumps, which is negatively impacting the performance of Nibe, a leading company in the industry. According to a new report from Morgan Stanley, this oversupply is causing Nibe’s stock to underperform, prompting the bank to downgrade its recommendation on the company from “equal weight” to “underweight” with a target price of 39 kronor.
Morgan Stanley has identified several challenges facing Nibe, particularly within its largest business segment, Climate Solutions, where demand is weak. The investment bank notes that while the consensus forecast predicts a strong recovery in volume demand, it fails to account for the structural oversupply that is likely to pressure operating margins in the medium term, even as demand rebounds.
In addition to the market challenges, the analysis also highlights political uncertainties surrounding subsidies and bans on gas boilers. Furthermore, there is a lack of clarity from Nibe regarding how the operating margins of its business segments will return to historical levels next year, despite the company’s stated ambition to do so.
Morgan Stanley’s report concludes by emphasizing the risk of disappointment relative to consensus estimates and the potential for downward revisions in earnings multiples, prompting the bank to recommend an “underweight” stance on Nibe.
The impact of this report was felt immediately, as Nibe’s stock dropped by nearly 5% on Tuesday morning. Since the beginning of the year, the stock has declined by almost 35%, with the company’s market capitalization currently standing at 83 billion kronor.
This news underscores the challenges facing Nibe and the broader heat pump industry in Europe, as companies navigate market dynamics and regulatory uncertainties. Investors will be closely monitoring how Nibe responds to these challenges and whether it can deliver on its goal of restoring operating margins to historical levels in the coming year.