Systemair (Hold, TP: SEK90.00) - Margin volatility

After updating our model for the weaker Q3 results than forecast, we have reduced our 2024/25–2026/27e adj. EBIT by c9% on average as we expect lower profitability. We have cut our target price to SEK90 (105) and reiterate our HOLD on limited upside potential. While we expect improving organic growth, we have low confidence in the margin target (10% on EBIT) due to the margin volatility, and find the valuation fair.

Set for spicy growth

Our recent field trip to India (visiting Volvo, Epiroc, Trelleborg, Autoliv and others) alongside our analysis suggests the country is set to take centre stage as a global manufacturing hub over the coming decade, shifting from being the sixth- to the third-largest end-market for the Swedish Industrial sector. India’s strong economic growth trajectory and favourable demographics mean the companies: 1) see double-digit growth as sustainable; 2) are pursuing manufacturing capacity expansions; and ...

Who stands to benefit?

A potential peace deal between Russia and Ukraine could unlock one of the largest reconstruction efforts in modern history. The World Bank estimates Ukraine will need USD486bn in rebuilding efforts over the next decade, but we estimate this would add only c2% to annual European construction spending. While the direct earnings effect may be modest, we expect the “rebuild Ukraine theme” to drive investor sentiment. We see Volvo, Epiroc, Hexagon, Metso, Hiab and ABB as some of the primary beneficia...

Systemair (Hold, TP: SEK105.00) - Closing in on margin target

Q2 2024/25 brought another strong adj. EBIT margin, and the CEO remains confident in overall market conditions. We have raised our 2024/25–2026/27e adj. EBIT by c8% on average, and our target price to SEK105 (85) dafter updating our valuation metrics. However, Systemair tends to see some performance volatility quarter to quarter (partly due to its project nature), and the stock is still trading above historical average multiples; with limited upside potential, we reiterate our HOLD.

Systemair (Hold, TP: SEK85.00) - On the right margin path

Systemair’s gross margin gains reinforce our confidence in profitability from here. However, our 2024/25–2026/27 adj. EBIT forecasts are largely unchanged post-Q1, with lower top-line estimates broadly offset by higher margin assumptions. We reiterate our HOLD and SEK85 target price, with the valuation looking fair, minimal differences between our estimates and consensus, and the market already pricing in expectations of improving market dynamics and expanding margins.

Systemair (Hold, TP: SEK85.00) - Negative mix likely to continue

After a mixed Q4 (which was below consensus but above our forecast on adj. EBIT), we have raised our estimates as we are now slightly more positive on future margins. Given our updated estimates and recently expanded peer multiples, we have raised our target price to SEK85 (78), but reiterate our HOLD. We expect continued negative (YOY) margin trends in Q1 due to mix.

Systemair (Hold, TP: SEK78.00) - HOLD on lacklustre outlook

Q3 earnings were well below our estimate and consensus, and we have cut our 2023/24–2025/26e adj. EBIT by c15% on average, and in turn lowered our target price to SEK78 (90). Given the limited upside potential and our view of market conditions in Systemair’s most profitable regions remaining challenging and weighing on earnings, we have downgraded to HOLD (BUY).

Systemair (Buy, TP: SEK90.00) - Green shoots

Following the solid Q2 results, we have raised our adj. EBIT estimates by 2% on average for the next three years. Organic growth was stronger than we expected, and management was upbeat on demand ahead given recent order activity. We reiterate our BUY and have raised our target price to SEK90 (86).

Systemair (Buy, TP: SEK86.00) - Limited changes ahead of results

Systemair is set to report its Q2 2023/24 results on 7 December (time not known). We estimate Q2 sales of SEK3,090m (in line with consensus), while our 9.8% margin puts us c6% below consensus on adj. EBIT. We have updated our model and lowered our 2023–2025e adj. EBIT by c3% on average, and have thus cut our target price to SEK86 (90). We still see Systemair as a strong growth story to leverage increasing energy efficiency focus globally. We expect robust earnings growth medium- to longer-term, ...

Northern Lights

Systemair (Buy, TP: SEK90.00) - Take a deep breath

Q1 was strong (14% above our forecast on adj. EBIT); we have raised our average adj. EBIT estimates by c3% for 2023–2025. The Systemair share price has fallen by c23% since the Q4 report in early June, while we see potential for solid earnings growth, along with a valuation currently c20–25% below average historical levels. We reiterate our SEK90 target price, but have upgraded to BUY (HOLD), given the upside potential is now c35%.

Northern Lights

Systemair (Hold, TP: SEK90.00) - Growth slowing more rapidly than expe...

The Q4 results were weaker than expected, driven by organic growth below our estimate and consensus, while margins also fell shy of our forecast. We have cut our 2022–2025e adj. EBIT by c7% on average, which has led us to reduce our target price to SEK90 (98). Given our estimate revisions and few positive triggers ahead, we see limited upside potential to our new target price. Thus, we have downgraded to HOLD (BUY).

Still going strong

Although reported EU taxonomy alignment for the sector is low, we have identified which companies screen best and could benefit from attracting ESG capital. We still favour China, mining, energy and aftermarket exposure, and see upside potential to consensus estimates, but view overall risk/reward as neutral on elevated valuation.

Northern Lights

Systemair (Buy, TP: SEK98.00) - Riding the energy wave

The Q3 report was strong, beating consensus adj. EBIT by 28%. We previously forecast negative organic growth towards the end of 2023/24 (slowing construction in Europe), which we now reverse as Systemair is seeing better demand driven by regulatory changes (energy efficiency support) than we had expected and continues to raise prices (with solid acceptance). Our new estimates incorporate double-digit average EPS growth for 2022/23–2024/25e, and have led us to raise our target price to SEK98 (70)...