Broader base raises Kingspan's 'true value' 70pc
Published 28/06/2011 | 05:00
Cavan-based insulation maker Kingspan has a "sounder, broader" business than before the recession, according to Davy Stockbrokers, which maintains that its true value could be almost 70pc more than its current market capitalisation.
In a research report issued yesterday, the broker suggested that, on a base case, Kingspan's share price should be trading at somewhere between €7.44 and €8.44.
Calculated on a "blue-sky" scenario where the group's earnings improve at a better-than-expected rate, Davy reckoned the shares could be worth as much as €11.76. It has set a price target at a midpoint between the band, at €9.60.
Davy noted that Kingspan's earnings before interest and tax fell 70pc from a 2007 peak of €241m to just €67m in 2009, while operating margins collapsed in the same period from 12.7pc to 5.6pc and revenue tumbled 40pc to €1.8bn to roughly €1.1bn in the same period.
Revenue was almost €1.2bn in 2010, when Kingspan reported its first lift in turnover and operating profit in three years. Much of that revenue increase was due to the euro weakness, however.
"While Kingspan enjoyed considerable success, particularly between 2003 and 2007, the group was heavily exposed to what could be termed the 'shed', or industrial, market in the UK.
"Its strong performance was also helped to a significant extent by an unsustainable boom in Irish construction," noted Davy analysts.
"The group today has a broader spread of products, its geographic footprint has expanded, and it is therefore much less dependent on the UK and Ireland."
The UK still accounted for 43pc of Kingspan's business last year. Kingspan is very active in the retail sector, with clients such as Tesco and Lidl.
Last year, Kingspan acquired the European insulation business of Irish firm CRH for €120m.
Davy believes the former CRH assets are poised to deliver "a much more significant contribution" to Kingspan's profits after accounting for "very little input" in the current year and a trading profit of €12m next year.
Shares in Kingspan closed up 1.1pc, or 8 cent, at €7 yesterday.