Sustainable Refrigerants Will Expand Global HVACR Markets

Key Takeaways

• Regulatory-driven demand for sustainable refrigerants and geographic expansion into emerging markets are fueling growth and diversification opportunities for both sales and margins.
  
• Focus on proprietary products, digitalization, and value-added services is enhancing profitability, operational efficiency, and recurring revenue streams.
  
• Exposure to regulatory shifts, integration challenges, inventory risks, aggressive acquisitions, and market volatility could constrain margins, cash flow, and sustainable revenue growth.

Catalysts

Provides commercial and industrial refrigeration, heating, and air conditioning products worldwide.

• The ongoing global transition to lower-GWP (Global Warming Potential) refrigerants, exemplified by Beijer Ref's rapid move to 454B products in North America and growing green OEM sales in EMEA and Asia, is accelerating, and regulatory requirements are expected to further increase demand for Beijer Ref's sustainable portfolio-supporting higher sales growth and price/mix improvement.
  
• Intensifying urbanization and rising living standards in emerging markets, combined with Beijer Ref's strategic expansion (including organic branch openings and a robust M&A pipeline, especially in the U.S. and Eastern Europe), are expanding the addressable market and enabling geographic diversification, which should drive sustained revenue growth in underpenetrated regions.
  
• Ongoing growth in the proprietary/private label product portfolio (e.g., Sinclair) and successful rollout into new markets (notably the U.S.) are expected to structurally improve gross margins over time, as own brands generate higher profitability than third-party products, supporting long-term EBITDA and net margin expansion.
  
• Investments in digital platforms, supply chain optimization, and inventory management are already yielding improved working capital efficiency and operational cash flow (with Q2 cash flow significantly above last year and further improvements anticipated in H2), supporting stronger cash conversion and financial flexibility for future strategic initiatives.
  
• Structural industry shifts toward outsourcing of HVACR installation, aftersales, and value-added services are likely to benefit scale distributors like Beijer Ref, driving higher recurring revenue streams and reinforcing customer stickiness, with a positive long-term impact on revenue visibility and earnings quality.

Beijer Ref Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Beijer Ref's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 8.0% in 3 years time.
• Analysts expect earnings to reach SEK 3.5 billion (and earnings per share of SEK 6.46) by about August 2028, up from SEK 2.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.3x on those 2028 earnings, down from 36.7x today. This future PE is lower than the current PE for the GB Trade Distributors industry at 32.4x.
• 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 6.22%, as per the Simply Wall St company report.

Beijer Ref Future Earnings Per Share Growth

Risks

• Beijer Ref's reliance on continued regulatory transitions (such as A2L/454B refrigerants) exposes it to risks if future policies or compliance costs escalate or if substitutes emerge faster than anticipated, potentially increasing compliance expenses and limiting eligible product lines, thus compressing net margins and restricting revenue growth.
  
• The North American business, particularly in the context of post-acquisition integration and current branch expansion, risks both near-term and structural margin dilution if scale synergies or product rollouts (e.g., Sinclair private label, HVAC transitions) underperform or if competitive pressure intensifies, putting strain on future earnings and net margins.
  
• Ongoing inventory transitions (notably the carry-over of R410A inventory and logistical challenges with 454B availability) could create operational inefficiencies and write-down risks if demand or supply chain normalization is delayed, hurting profitability and tying up working capital, negatively impacting cash flow and returns.
  
• Heightened M&A activity, especially in the U.S., could further stretch management attention and increase exposure to integration risk, competition for targets, and potentially higher purchase multiples; if these risks materialize, they may result in lower returns on invested capital and slower EPS growth.
  
• Persistent uncertainties in key markets (EMEA, APAC, food retail segment), early-cycle volatility, and dependence on weather-related demand (e.g., heatwaves), suggest organic revenue growth is vulnerable to macroeconomic downturns or cyclical declines, with possible adverse effects on sales and operating profits.

Valuation

• The analysts have a consensus price target of SEK180.167 for Beijer Ref based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK200.0, and the most bearish reporting a price target of just SEK159.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK43.9 billion, earnings will come to SEK3.5 billion, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 6.2%.
• Given the current share price of SEK171.9, the analyst price target of SEK180.17 is 4.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.