EUROPEAN HVAC : German Heat Pumps subsidy applications +64% in May 26

Research evidence excerpt

EUROPEAN HVAC : German Heat Pumps subsidy applications +64% in May 26

Investment case, valuation and risks

Ariston (Outperform, Target Price EUR4.80)

Investment case

Improving HP demand in IT/FR (c. 20% of sales) and sustained HP growth in Germany

bode well for growth. The new heating/cooling EU strategy may reduce risks and M&A

synergies should sustain further strong EPS growth and ROCE expansion.

Valuation methodology

Our TP assumes the stock trades on a 9.4% 2027e FCF yield discounted back a year at

a 10% cost of equity. Our TP includes a 150bps discount for long term growth, a 100bps

premium for capital allocation and 100bps discount to reflect the lack of liquidity of the

stock.

Risks

To the upside:

Faster HP growth in Europe / better than expected penetration in the US market /

stronger than expected efficiency measures to boost margins / potential takeover target

for a larger player

To the downside:

Removal of public incentives / stronger competition / cyclical slowdown / lack of pricing

power to offset higher sourcing costs / adverse forex / boiler bans

Carel Industries (Neutral, Target Price EUR34)

Carel's strong growth story should have peaked by mid-2026, providing little

momentum. With multiples also close to historical peak levels we see limited upside to

the stock. Its potential M&A activity could represent a catalyst on the stock but the

limited visibility on the size and on the potential value creation does not support a strong

view on further re-rating of the stock.

Our TP assumes the stock trades on a 1.9% 2027e FCF yield discounted back a year at

a 10% cost of equity. Our TP includes a 300bps premium for long-term growth to capture

exposure to secular growth trends, a 170bps premium for capital allocation thanks to