Ventilation Market Recovery In 2025 Will Boost Demand For Energy-Efficient Solutions

Key Takeaways

• Strategic divestment and cost-reduction efforts aim to enhance profitability and strengthen operating margins across key divisions.
  
• Focus on acquisitions and ventilation system growth positions Lindab for market leadership and sustained long-term revenue improvement.
  
• Negative organic growth, restructuring costs, and reliance on acquisitions pose risks to profitability and financial performance amid market uncertainty and low demand.

Catalysts

Manufactures and sells products and solutions for ventilation systems in Europe.

• Lindab plans to fully implement a cost-reduction program in 2025, expected to save SEK 120 million annually, which should increase operating margins, particularly in the Ventilation Systems division.
  
• The company is divesting its Profile business in Eastern Europe, which is anticipated to improve overall group profitability, potentially increasing the adjusted operating margin from 7.8% to 8.3%.
  
• Lindab has a strong pipeline of acquisition prospects, intending to continue its strategy of value-enhancing acquisitions, which could lead to revenue growth and improved market positioning.
  
• The strategic focus on ventilation is emphasized as a long-term growth area, with market recovery expected in the second half of 2025, boosting sales and profitability as demand for energy-efficient ventilation strengthens.
  
• The company is realizing synergies from past acquisitions, expecting further cost benefits and efficiency improvements by leveraging its expanded capacity and automation investments, positively affecting net margins and earnings.

Lindab International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lindab International's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 8.3% in 3 years time.
• Analysts expect earnings to reach SEK 1.2 billion (and earnings per share of SEK 16.31) by about March 2028, up from SEK 315.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK1.4 billion in earnings, and the most bearish expecting SEK1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 52.1x today. This future PE is lower than the current PE for the GB Building industry at 22.7x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Lindab International Future Earnings Per Share Growth

Risks

• Negative organic growth resulting from low market demand, particularly in the construction sector, poses a risk to Lindab's revenue generation.
  
• The company's profitability is currently affected by restructuring and onetime costs related to business divestments, which may continue to impact net margins.
  
• Challenges in the German market, a significant region for acquisitions like Airmaster and Felderer, could adversely affect earnings if the market remains weak.
  
• Lindab's reliance on acquisitions for growth entails execution risks, which might lead to complications in achieving expected synergies and could impact financial results.
  
• The potential need for further cost-reduction measures due to ongoing market uncertainty may lead to additional restructuring costs, thereby influencing net margins and overall financial performance.

Valuation

• The analysts have a consensus price target of SEK238.667 for Lindab International 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 SEK283.0, and the most bearish reporting a price target of just SEK208.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK15.0 billion, earnings will come to SEK1.2 billion, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 6.9%.
• Given the current share price of SEK213.2, the analyst price target of SEK238.67 is 10.7% higher.
• 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.