Kingspan update brings upgrades and sector optimism

 

Brokers have greeted last week's Kingspan’s surprise trading update with a wave of forecast upgrades as the company’s buoyant sales point to a big rebound in European construction this year.

Several investment banks that cover the Cavan-based building materials company raised their profit forecasts or price targets on the stock after management released the unscheduled statement in advance of first-half results in August.

Kingspan’s shares closed up nearly 7pc at €82.08 in Dublin last week, close to a high for the year and far above a low of €52.75 in February when the company’s executives were giving evidence in the Grenfell Tower Inquiry.

Kingspan said its first quarter momentum had continued for the second three months of the year and that sales were expected to reach €2.9bn for the first half, an increase of 40pc over 2020 and 29pc better than 2019.

Trading profit was pencilled in at €315m, a big jump on the €200m booked for the same period last year.

“We reported in April that we had a strong order backlog at that point and this has grown further in the period since,” the company said, adding that most key markets were “strongly ahead”.

The company, headed by Gene Murtagh, also flagged that raw material inflation remained at record levels and that high prices were expected to persist “through the summer months at least”.

Bank of America increased its price target to €90 from €85 in response to the update, saying it was “impressed by Kingspan’s ability to navigate the current high cost inflation and low raw materials availability environment”.

Dublin brokers Goodbody and Davy both upgraded their full-year trading profit forecasts for the group by 12pc to €640m, with Goodbody analyst David O’Brien noting Kingspan’s operating margin of 10.9pc was a remarkable outcome in the context of the raw material inflation at play”.

However, while analyst consensus was positive on Kingspan’s figures, some questioned the company’s ability to sustain its outperformance through to the end of the year.

Buidling materials research specialist On Field pointed out that it wasn’t clear how much of the sales increase was due to market share gain and an underlying recovery versus pre-stocking from customers in anticipation of further price increases, meaning gains could slow in the second half.

Exane BNP said the update “bodes well” for other insulation makers and that there was a strong indication the sector would be supported by “booming construction demand”.

Source – The Irish Independent