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Investing.com -- Berenberg has downgraded Munters Group AB (ST:MTRS) to "hold" from "buy," and lowered its price target to SEK140 from SEK200, citing limited visibility in the data center capital expenditure cycle and growing uncertainty around long-term earnings. The current share price stands at SEK138.10.
Central to the downgrade is the Data Centre Technologies (DCT) segment, which is expected to account for approximately 60% of Munters’ 2025 EBITA.
The segment has reported EBITA margins exceeding 20%, but Berenberg described these as unsustainable for a project-based business operating in a fragmented market.
The brokerage projects a margin decline to 15% in the medium term, while cautioning that in a weaker demand scenario, margins could temporarily fall below 10%.
Competition in the data center cooling market is increasing, driven by large HVAC players such as Carrier Global (NYSE:CARR), which tripled its data center order intake in 2024 and expects to double revenue in 2025.
The brokerage also flags rising technological risks, including the adoption of liquid cooling and innovation by rivals, which could challenge Munters’ position over time.
AirTech, another core segment, is facing its own setbacks. EBITA margins have fallen from a historical range of 14-16% to just 5% in Q1 2025, impacted by weak battery demand and operational inefficiencies, including dual factory operations in Amesbury, Massachusetts.
Although Munters expects some cost savings from a SEK100m efficiency program and consolidation of production, Berenberg forecasts only a gradual recovery, with margins projected to reach 13% by 2027.
Updated group-level estimates reflect these challenges. Berenberg cut its EBIT projections by 29% for 2025, 25% for 2026, and 21% for 2027.
Sales forecasts were also reduced by 16.4% for 2025, 15.5% for 2026, and 12.6% for 2027. Adjusted EPS estimates fell 39.3% for 2025, 36.1% for 2026, and 31.6% for 2027.
The brokerage expects Munters to generate SEK14.6bn in revenue and SEK1.89bn in EBITA in 2025, with margins recovering to 14.3% by 2027.
Scenario analysis underscores the valuation uncertainty. In a positive case, where DCT demand and margins hold, Munters could be worth SEK239 per share.
In a downside scenario, marked by margin compression and lower sales, the share could fall to SEK78.
The base case supports the revised SEK140 price target, based on a discounted cash flow model applying an 8% WACC and 3% terminal growth rate.