Kingspan chief executive Gene Murtagh sees sales at the maker of building insulation panels topping €3 billion for the first time as the benefit of acquisitions outweighs a recent dip in UK orders as Brexit concerns mount. The Cavan-based company, which posted 25 per cent sales growth in the first four months of the year to €903.1 million, said in a trading statement on Thursday that UK orders for its products in the non-residential construction market eased back in the past two months. However, Mr Murtagh told reporters after the group's annual general meeting in Dublin he expects activity to pick up after the UK vote on EU membership in June.
“I can’t say I’m concerned about Brexit,” Mr Murtagh said. “The pipeline is strong and we’d expect that once the cloud lifts it’ll be back to business as usual.”
Analysts signalled on Thursday they were increasing their forecasts for Kingspan, which posted €2.77 billon of sales last year, on the back of the group’s positive interim management statement.
Acquisitions
The Cavan-based group spent €72 million on acquisitions at the end of April, comprising an installation panel business in the UK, and an Australian business that will fit into Kingspan’s environmental unit, according to Mr Murtagh. It has flexibility to spend a further €500 million on deals, he said.
Following two major acquisitions in 2015, of Joris Ide in Belgium and Vicwest in Canada, for a combined €459 million, Kingspan’s remuneration committee tweaked a bonus plan for executives in the middle of the year. This introduced a deferred share reward, of up to 50 per cent of base salary, for the company to achieve “ambitious” earnings growth targets.
At the agm, almost 32 per cent of shareholders voted against the remuneration plan. Mr Murtagh, who received €1.75 million in total compensation last year, said that investor concern was less about the sums involved and more about the timing of the introduction of the new scheme.
In the trading update, Kingspan said it lost some market share in insulated panels as it prioritised margins over sales volumes. Insulation board sales in the US are “very robust at a time when we are investing in additional capacity,” the company said.
While Kingspan reported solid trading across Europe between January and April, activity across the Middle East, Asia and Australia is relatively flat year-on-year.
Divisional breakdown
Broken down by division, insulated panel sales rose 37 per cent in the reporting period, helped by two acquisitions last year. Insulation board revenues gained 11 per cent, while access floors sales increased 6 per cent with weak US office and data centre building activity taking the shine off strong business in this area in the UK. Environmental sales fell 3 per cent.
Kingspan said that the second half will have “tougher comparables” as its acquisitions in 2015 had already helped its results for the last six months of the year. It warned that it will be challenging to full pass expected “subsantial” steel price rises in the third quarter on to customers, while the euro-sterling exchange rate is another headwind for the company.
Mr Murtagh said he expects steel prices, which comprise about half of group input costs, to rise more than 10 per cent in the third quarter.
Goodbody Stockbrokers analyst Robert Eason was prompted by the trading update to upgrade his full-year earnings before interest, tax and amortisation estimate for the group by 4 per cent to €288 million. This compares to the company’s 2015 result of €256 million.
Separately, Davy analyst Flor O’Donoghue said he expect to raise his earnings forecast by about 3 per cent to as much as €387 million.
“Kingspan’s earnings momentum remains strong,” said Mr O’Donoghue, adding that the stock, which he rates outperform, is “one of the most attractive names in the building materials sector.”
Shares in Kingspan were 1.6 per cent higher in early afternoon trade in Dublin, at €23.12.
