18th Jul 2023 11:28
(Alliance News) - Irish broker Davy was effusive in its praise for Kingspan Group PLC, on the back of the building materials firm's guidance boost and latest acquisition.
Davy noted Kingspan shares have now broken out of a recent range, though there may still be more gains "to play for".
Kingspan traded 3.4% higher at EUR71.52 each in London on Tuesday morning. Since upping guidance last week, the stock is up some 25%.
Kingspan on Tuesday said it has acquired, for over EUR250 million, a majority stake in Steico SE from which it anticipates "significant long term leverage".
Kingspan said it has agreed with Vienna-based timber merchant Schramek GmbH to acquire about 51% of the shares in Steico, a Feldkirchen, Germany-based manufacturer of flexible wood fibre insulation products.
The Kingscourt, Ireland-based firm will pay approximately EUR251.4 million initial consideration, or EUR35 per share. It also intends to pay a further EUR35 per share if certain thresholds are achieved along with "a material uplift in profitability".
Kingspan said it also has the option to acquire a further stake of approximately 10% in Steico.
Davy believes Kingspan has a long-term view of the deal, as Steico's short-term outlook is tricky.
"It is known that 2023 will be a difficult year for Steico, but Kingspan is clearly prepared to take a longer-term view on the business and its potential," Davy analysts explained.
"The investment represents further progress in Kingspan's strategy to provide the full spectrum of insulation products. Steico is a leader in natural insulation and wood-based building products."
The acquisition was announced a week after the firm lifted guidance.
"Kingspan remains a force to be reckoned with if that was ever in doubt. It is the difficult times that really separate the strong from the weak, and Kingspan's strengths are now coming to the fore.
Kingspan expects to report trading profit for the first half in the region of EUR435 million, up marginally from EUR434 million year-on-year and topping previous guidance of just over EUR400 million.
Davy added: "We are formally updating Kingspan forecasts after the group's ad-hoc trading statement on July 11th. We are increasing our 2023 trading profit forecast to EUR870 million, an upgrade of 9%. For 2024, we roll forward our trading profit estimate by 4% to EUR925 million, although this clearly is subject to revision."
By Eric Cunha, Alliance News news editor
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