Kepler upgrades Zehnder on resilient ventilation demand, margin expansion

Investing.com -- Kepler Cheuvreux raised its 2026 adjusted earnings-per-share estimate for Swiss ventilation and climate systems maker Zehnder Group to CHF5, above the CHF4.8 consensus average, as European construction indicators held up better than feared, supporting continued market-share gains and margin expansion in the company’s Ventilation division.

The broker upgraded Zehnder to Buy from Hold and raised its target price to CHF89 from CHF81, a 9.9% increase, citing the resilience of the ventilation business.

The stock closed at CHF69.60, implying 27.9% upside to the new target, according to market data dated Aug. 11.

Kepler Cheuvreux’s adjusted EPS estimates for 2027 and 2028 stand at CHF5.74 and CHF6.49, respectively, both above consensus estimates of CHF5.5 and CHF6.3.

The broker raised its adjusted EPS estimates by 2.5% on average across 2026-28 and increased its Ventilation target multiple to 13.0 times.

European construction markets are proving more resilient than expected, although financing remains a constraint, the broker said. Euro-area mortgage conditions became less supportive through the first half of 2026, while residential permits continued to recover from their 2024 trough.

Higher mortgage rates and building costs mean part of the approved pipeline may be delayed or cancelled, supporting a still-conservative view on 2027 growth, Kepler Cheuvreux said.

The broker forecasts Ventilation will maintain solid growth and margin expansion in the second half of 2026, with 5% organic growth, moderating from 8% in the first half, as the European EVO rollout and North American channel expansion continue to drive market-share gains.

Second-half adjusted EBIT margin is expected to rise 80 basis points year-on-year to 12.7%, implying a full-year segment margin of 13.3%, supported by pricing and operating leverage, according to the report.

For 2027, Kepler Cheuvreux said its outlook for Ventilation has improved moderately, with growth likely weighted toward the second half.

The broker forecasts 6% organic growth, supported by better European leading indicators, continued investment in innovation, services, market expansion and digitalisation, and more focused execution under the company’s new divisional structure.

Adjusted EBIT margin is forecast to increase by another 40 basis points to 13.7%, driven by operating leverage and divisionalisation-related cost savings, the broker said.

Kepler Cheuvreux continues to expect the company’s Radiators division will not earn its cost of capital by 2027, which is why it maintains its view that the business will likely be sold in the coming 12 months. If realised, this would turn Zehnder into a pure-play ventilation equity story, which should lead to a structural rerating of the name, the broker said.

The broker forecasts sales of €785 million for 2026, €818 million for 2027 and €875 million for 2028. Adjusted EBITDA is forecast at €99 million, €108 million and €119 million over the same period, with adjusted EBIT of €75 million, €83 million and €94 million.

Zehnder’s shares have posted a year-to-date absolute performance of -14.9%, with a 52-week high of CHF90.30 and low of CHF59.80, according to the report.

CRH and Holcim were named among Kepler Cheuvreux’s most preferred stocks in the sector, while HOCHTIEF was listed as least preferred.

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