Housing Recovery And Manufacturing Consolidation Will Gradually Support Healthier Margins Ahead

Catalysts

About Nobia

Nobia designs, manufactures and sells kitchen solutions across the Nordic region and the U.K.

What are the underlying business or industry changes driving this perspective?

• Although the ramp up of Nobia Park modernizes manufacturing and supports higher value, more sustainable products, any prolonged dual running of Tidaholm and Jönköping risks extended under absorption in the supply chain, limiting operating leverage and pressuring EBIT and net margins.
• Although housing transactions and home renovation support schemes in Sweden point to a gradual recovery in demand, a slower than expected rebound in Nordic housing starts would delay conversion of increased architect activity and quote revisions into firm project orders, constraining volume driven revenue growth.
• While the mix shift toward higher value consumer products and premium brands is supporting average order values and gross margin today, weak professional volumes and a small consumer share of total volume mean that any stall in consumer momentum could quickly erode gross profit and earnings improvement.
• Although the shift to an asset light model and ongoing cost out programs have already delivered SEK 650 million of savings, further store exits and footprint reductions in the U.K. may prove more complex and protracted than planned, prolonging restructuring costs and limiting near term margin recovery.
• While consolidation of Nordic production and common ranges across countries support scale benefits and inventory reductions, execution risks in transferring more component and assembly volume to Jönköping could trigger temporary quality or delivery disruptions, dampening revenue and delaying expected margin gains.

Assumptions

This narrative explores a more pessimistic perspective on Nobia compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Nobia's revenue will grow by 2.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -30.0% today to 6.1% in 3 years time.
• The bearish analysts expect earnings to reach SEK 644.1 million (and earnings per share of SEK 0.96) by about December 2028, up from SEK -3.0 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK743.9 million.
• 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 5.6x on those 2028 earnings, up from -1.0x today. This future PE is lower than the current PE for the GB Consumer Durables industry at 30.5x.
• The bearish 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 10.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A cyclical recovery in Nordic and U.K. housing starts, combined with rising consumer confidence and renovation grants in Sweden, could turn the current soft market into a volume upswing. This could drive faster than expected revenue growth and support a higher share price through stronger operating leverage and earnings.
• The ramp up of Nobia Park in Jönköping, along with factory consolidation such as the closure of Nastola and transfer of volumes from Tidaholm, may unlock structural efficiency gains beyond management's original assumptions. This could improve net margins and cash generation and support a re rating of the equity.
• The ongoing mix shift toward higher value consumer products, strengthened brands and new trademarks launched at Nobia Park could increase average order values and sustain gross margin expansion over the long term. This may lift earnings and potentially push the share price higher than anticipated.
• Further progress in transitioning the U.K. operations to an asset light model, including successful store closures, partner distribution and continued cost out programs, may significantly improve profitability in a region currently seen as impaired. This could enhance group EBIT margins and overall valuation.
• Continued reductions in working capital and inventories, combined with disciplined CapEx as Jönköping investments taper, could drive structurally stronger free cash flow than the market expects. This may accelerate deleveraging and support a higher equity valuation through improved earnings quality.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Nobia is SEK4.0, which represents up to two standard deviations below the consensus price target of SEK5.05. This valuation is based on what can be assumed as the expectations of Nobia'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 SEK6.1, and the most bearish reporting a price target of just SEK4.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be SEK10.6 billion, earnings will come to SEK644.1 million, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of SEK4.23, the analyst price target of SEK4.0 is 5.8% lower. 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.