7th Nov 2022 18:23
(Alliance News) - Kingspan Group PLC's trading update on Monday was a "slight miss", but there were some "rays of light" for a business with solid fundamentals, according to UBS.
The Kingscourt, Ireland-based building materials company said sales in the nine months to September 30 jumped 33% to EUR6.25 billion from EUR4.72 billion a year ago. Third-quarter sales alone rose 17%.
In Insulated Panels, sales increased by 29% in the first nine months and 13% in the third quarter. It said global sales volumes in the quarter were "expectedly sluggish reflecting the slowdown in order placement flagged mid-year".
The firm said that expectations around raw material pricing were a factor, and it has seen orders begin to pick up after the summer.
"The key is order intake which Kingspan notes some pick up in order momentum post the summer after flagging a slow down mid-year," UBS said.
"Volume trends are stabilising but margins are getting squeezed short-term due to high levels of inventory," UBS added.
Kingspain said it expects a full-year trading profit of EUR830 million, which would be up 9.9% from EUR755 million in 2021.
Whilst nearing double-digit growth, the firm's forecast is 4% lower than consensus expectations of EUR866 million, and 5% below UBS's estimate of EUR874 million.
Kingspan noted a "lack of visibility" in its current operations, beyond the next few months, amid cautious sentiment. However, it said the sharp increases in raw materials over the most recent 18 months "appear to have peaked, at least for now".
According to UBS, pricing is likely to face pressure to reflect the lower input costs going forward.
"The management of that unwind will be key in determining the profit outlook for 2023," the Swiss Bank said.
UBS notes there's no specific guidance for 2023, but expects consensus to settle somewhere below EUR800 million in earnings before interest, tax and amortisation.
Looking ahead, Kingspan said net debt at year-end is expected to be in the region of EUR1.5 billion, reflecting a 2022 development spend in excess of EUR1.2 billion.
It also noted positives including its activity pipeline in data, technology, EV automotive and district heating applications.
"While the message is mixed we think results are good enough for some positive reaction in the shares," UBS considered.
Shares in Kingspan closed up 5.1% to EUR53.71 each in London on Monday.
"We think valuation is attractive now for a high-quality business with some cyclical risks but should grow strongly over the long-term," UBS concluded.
UBS holds Kingspan at a 'buy' rating, with a target price of EUR90.00.
By Elizabeth Winter; [email protected]
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