Shares in insulation and building materials group Kingspan (KGP) gained 1.8% to €96 after the company posted a sharp jump in revenues and earnings for the first half thanks to what it admitted was an unusually strong market.

Sales rose 41% to €2.9 billion, driven partly by acquisitions and partly by strong underlying volume growth in insulation panels and boards, while trading profits climbed 64% to €329 million, resulting in a trading margin of 11.3%, an increase of 160 basis points (1.6%) on last year.

UNUSUAL TIMES

The firm acknowledged it was enjoying ‘an extraordinary period during which we have experienced unprecedented demand’, but it also cautioned it was seeing ‘increasingly acute supply constraints and an inflationary curve never experienced before’.

Meanwhile, due to ‘unprecedented and ongoing’ inflation in raw material costs, the company said over the course of this year it needs to recover well in excess of €600 million in cost increases by pushing through price hikes to its customers. ‘Whilst a lag has been and can be expected, the recovery effort has so far been a success’, it added.

As well as strong demand in the new build and repair, maintenance and improvement markets, Kingspan is seeing rising orders for its energy-efficient insulation products in new end-markets such as online retail, data warehousing and electric vehicle production, which are long-term growth areas where the business can expand.

EXPERT VIEW

Shore Capital analyst Graeme Kyle flagged Kingspan’s higher operating margin and the fact sales in key markets outside the UK, such as Brazil, continental Europe and the US, are taking off.

‘Kingspan offers ESG credibility, sustainably high cash returns, increasing global market share and a clear growth profile’, said Kyle, noting that while the firm is keen to pursue M&A opportunities, deals are financed from cash flows with no dilution for shareholders.

He added, however, that on a forward price to earnings multiple of 32.7 times and a prospective dividend yield of just 0.7% the shares look ‘fully valued’ at best.

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Issue Date: 20 Aug 2021