UBS Bullish on Munters' AI Data Center Play, Sets SAR 245 Price Target

UBS just dropped a fresh take on Munters Group AB, a Swedish player in climate control solutions. The bank issued a buy rating and tossed out a 12-month price target of 245 Swedish Krona, backing the company's role in the booming AI data center segment.

What pushed UBS's enthusiasm? Their forecast that Munters' earnings will essentially double between 2026 and 2028, thanks majorly to the Data Centre Technologies (DCT) division. This unit, responsible for around 40% of sales and a hefty 60% of adjusted EBIT, is expected to keep firing on all cylinders.

UBS is anticipating an 18% organic CAGR for sales in the DCT segment, along with a 400 basis point increase in adjusted EBITA margin. These targets edge past consensus estimates, suggesting UBS sees upside beyond the average street view.

The analysts also pointed out that current market prices only account for about 14.5% mid-cycle adjusted EBITA margins. UBS's own model pegs this figure closer to 17%, hinting that some growth potential might still be underappreciated by investors. The firm's reverse DCF analysis backs this perspective.

Digging into numbers, UBS expects explosive DCT revenue growth rates of 40% in 2026, mellowing to 33% and then 13% in subsequent years. A strong 2.35x book-to-bill ratio in 2025 and nearly twice that amount backing orders provide some cushion for these forecasts.

Further fueling UBS's optimism is their projection of a 51% CAGR for direct liquid cooling markets, which Munters is targeting aggressively from 2025 to 2030. As AI workloads grind higher, demand for efficient cooling tech ramps up concurrently.

Across the group, revenues are expected to hit 17.45 billion SKr in 2026 and climb steadily thereafter, coupled with adjusted EBITA margins rising to nearly 17% by 2028. Earnings per share estimates sit above consensus, by around 1% to 8% in respective years.

UBS's valuation model applies an 8% weighted average cost of capital and a 6% mid-cycle growth rate to arrive at their price target. With Munters trading at a forward EV/EBIT slightly below industry peers, UBS seems to imply there could be some room for re-rating.

The AirTech division, which makes up half the group's sales, isn't being ignored either. UBS expects a healthy 13% organic order growth there in 2026, boosted by a modest uptick in capital expenditure across commercial and food/beverage sectors per their internal indicators.

It's not all sunshine: UBS listed some caution flags including potential slower AI infrastructure spending, hiccups in expanding production capacity at Munters' Virginia site, execution risks around cost savings, and heightened competition in liquid cooling technology.