Long Term Air Quality And Circular Economy Demand Will Support This Undervalued Filtration Supplier

Catalysts

About Nederman Holding

Nederman Holding supplies industrial air filtration, ducting, monitoring and related services that help customers manage emissions and energy use in their facilities.

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

• Growing focus on air quality, emissions control and circular economy themes in areas such as metal recycling, battery recycling and green steel is supporting demand for Nederman's filtration, process and monitoring solutions, which can support revenue growth as larger investment projects resume.
• Energy saving products like Nederman Save and new energy efficient textile plant solutions are gaining customer traction and awards. This can support higher equipment volumes and pull through for related service contracts, benefiting revenue and earnings over time.
• Expansion of the service and digital product ranges, along with double digit service growth in Process Technology, is increasing the share of recurring and higher margin revenue. This can support more resilient EBITDA margins and earnings per share.
• Ongoing investments in production efficiency in facilities in Poland, Helsingborg, the U.S. and NEO Monitors, along with footprint adjustments closer to end markets, are improving divisional EBITA margins such as the 13.9% reported in Extraction & Filtration Technology. This can support group net margins even if currency remains a headwind.
• Acquisitions such as Euro Equip, Ollem and Olicem are broadening Nederman's offering in hot gas, recycling and software, while integration is already contributing to orders and sales. This can support currency neutral revenue growth and scale benefits in EBITDA.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Nederman Holding's revenue will decrease by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 6.0% in 3 years time.
• Analysts expect earnings to reach SEK 335.6 million (and earnings per share of SEK 9.56) by about January 2029, up from SEK 296.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 22.1x on those 2029 earnings, up from 17.7x today. This future PE is lower than the current PE for the GB Building industry at 26.6x.
• 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 7.54%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Order intake is already under pressure, with Q3 orders at SEK 1.25b compared to SEK 1.44b a year earlier and a currency-neutral decline of 7.1%. Management also points to longer decision times and delays on larger investments, which could weigh on future revenue if major projects continue to be postponed.
• The company is heavily exposed to currency movements, with SEK 184m of sales reduction and SEK 19m of negative impact on adjusted EBITDA in the quarter purely from currency. A persistently weaker US dollar against the Swedish krona could keep putting pressure on reported revenue and earnings.
• Several divisions report dampened demand, slower base business in regions such as EMEA and APAC, and hesitant customer appetite for major investment projects. If this pattern continues it could limit organic growth and put a cap on margin expansion, affecting both revenue and net margins.
• The growth story in areas such as green steel, battery recycling, metal recycling, and textile and fiber efficiency depends on customers eventually making larger capital investments. If the current overcapacity in spinning mills or hesitancy in heavy industry persists, the expected long-term benefits to revenue and EBITDA margins may not fully materialise.

Valuation

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

• The analysts have a consensus price target of SEK170.0 for Nederman Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be SEK5.6 billion, earnings will come to SEK335.6 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of SEK149.6, the analyst price target of SEK170.0 is 12.0% 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.