Data Center Cycles And Supply Shocks Will Squeeze Margins

Key Takeaways

• Heavy dependence on the rapidly growing but volatile data center market poses significant top-line and margin risks amid potential sector slowdowns or project delays.
  
• Rising supply chain vulnerabilities, cost inflation, and competition from software-focused and low-cost players threaten profitability and long-term competitive positioning.
  
• Strong exposure to digitalization and energy efficiency trends, innovation focus, and flexible capacity expansion position BELIMO for resilient revenue and margin growth despite market volatility.

Catalysts

Engages in the development, production, and sale of damper actuators, control valves, sensors, and meters for heating, ventilation, and air conditioning systems (HVAC) in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• BELIMO's recent outsized growth is heavily reliant on the data center vertical, which has swiftly risen to contribute nearly a third of total organic growth but remains highly cyclical and vulnerable to technology transitions, overcapacity, and sudden project delays-should hyperscale build-out moderate or tech refresh cycles lengthen, top-line growth could rapidly decelerate, leading to disappointments in revenue and operating leverage.
  
• Much of BELIMO's production value-add still depends on globally-sourced supply chains outside the company's primary assembly locations, making it particularly susceptible to disruptions from escalating geopolitical tensions, trade barriers, and protectionist policies, with direct consequences for costs, delivery lead times, and ultimately net margins.
  
• The industry's accelerating shift toward fully-integrated, software-centric building management platforms heightens the risk that BELIMO's largely hardware-driven actuator and valve portfolio will be marginalized, eroding competitive advantage, pushing product commoditization, and compressing margins over the medium to long term.
  
• Cost pressures from rising wages, persistent raw material inflation, and ongoing investments in capacity expansion may substantially dilute future profitability, especially as retrofitting and renovation projects-currently key drivers-face practical constraints like installer shortages and increased project complexity, undermining both EBIT margin and free cash flow.
  
• Intensifying competition from low-cost Asian manufacturers as well as software-native entrants threatens BELIMO's ability to maintain price premiums and grow in emerging markets; loss of market share under these conditions would materially reduce expectations for earnings growth in future years.

BELIMO Holding Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on BELIMO Holding compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming BELIMO Holding's revenue will grow by 10.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.6% today to 17.2% in 3 years time.
• The bearish analysts expect earnings to reach CHF 241.6 million (and earnings per share of CHF 19.65) by about July 2028, up from CHF 170.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 33.8x on those 2028 earnings, down from 65.9x today. This future PE is lower than the current PE for the GB Building industry at 56.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.1%, as per the Simply Wall St company report.

BELIMO Holding Future Earnings Per Share Growth

Risks

• BELIMO's strong exposure to structural growth in data centers-driven by increased digitalization, liquid cooling adoption, and global demand for AI infrastructure-positions the company for above-average long-term revenue growth, potentially contradicting expectations for a share price decline.
  
• The company is benefitting from high retrofit and renovation demand in EMEA, with over half of regional growth coming from upgrading existing buildings, which provides recurring revenue streams and margin stability despite construction market cyclicality.
  
• BELIMO's capacity expansion investments in China, the US, and Switzerland signal confidence in sustained long-term demand, and the ability to scale production in lockstep with market needs mitigates growth bottlenecks, supporting future earnings power.
  
• Secular trends such as climate change, stricter energy efficiency regulations, and rapid urbanization continue to drive demand for smart HVAC solutions globally, providing robust tailwinds for BELIMO's product portfolio and top-line growth over the long term.
  
• Company's focus on higher-end product mix, innovation, and market share gains-particularly in Control Valves and Sensors-supports high gross margin quality and EBIT margin expansion, which could deliver resilient profit growth and buffer against potential market headwinds.

Valuation

• The assumed bearish price target for BELIMO Holding is CHF586.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of BELIMO Holding's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF1100.0, and the most bearish reporting a price target of just CHF586.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CHF1.4 billion, earnings will come to CHF241.6 million, and it would be trading on a PE ratio of 33.8x, assuming you use a discount rate of 5.1%.
  
• Given the current share price of CHF914.5, the bearish analyst price target of CHF586.0 is 56.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.