Thursday 23 November 2017

Despite problems Kingspan still a poster boy for beating recession

Thomas Molloy

Thomas Molloy

KINGSPAN has had its problems; its major shareholders have invested foolishly outside the company, it bought a lemon in the US some years ago which triggered legal action and it depends on the construction sector for business.

Despite these problems, Kingspan remains one of the most interesting companies in Ireland and a poster boy for what is needed to turn our economy around.

It is an exporter which looks to mainland Europe and further afield for new sales and operates in a business (insulation) that is both fashionable and important.

It also develops new products and dominates several niche markets.

Kingspan's biggest selling point is that rising energy prices and further regulation will push demand for its insulation products while the company's professional sales teams know how to communicate with architects and builders.

Like many companies in the construction sector, Kingspan has been hard hit by poor sentiment and the poor weather across Europe in the first quarter but the company signalled a return to form when it presented first-half results late last month by unexpectedly restoring its dividend after sales of insulation panels rose strongly in Australia, Germany and the Czech Republic.

At the company's insulation boards division, the picture was similar with sales jumping 12pc as the company benefited from the surge in growth in Europe in the second quarter.

With a 6pc decline in sales in the first quarter but a 1.1pc rise in sales over the entire first half, it is pretty clear that Kingspan's second quarter saw excellent sales growth and there is strong momentum at present.

While the 9pc increase in first-half operating profits had been well flagged, Kingspan surprised most analysts by slashing debt by almost half to a manageable €164.3m.

The fly in the ointment has been a slowdown in order intake in the second quarter which was slower than the first quarter and poses worries at a time when rising chemical costs are likely to push up input prices.

Chief executive Gene Murtagh is not sitting on his laurels however; warning that the global economy is still shaky and input prices could rise but this is the sort of attitude that keeps the company keen and gives management the courage to keep a lid on prices while other companies whine and flounder.

Mr Murtagh is also refreshingly honest about Kingspan's chances in the home market, saying "there will be no question of a resumption in new-build units" even when the recession ends. This sort of clear speaking is refreshing in a climate where so many chief executives are unable to call a spade a spade.

Kingspan has a clear focus on an expanding market, good products, leading positions in many markets and good management with a track record when it comes to bolt-on acquisitions; the problem for investors is that none of this has been lost on rival investors.

The shares are not cheap and enjoyed another strong rise following the interim results two weeks ago. With shares trading with a forward price earnings ratio of 19, it is clear that much of the good news is priced into the stock. Cautious, long-term investors might like to buy in at these prices while others will probably want to consider buying in on any price weakness.

Irish Independent

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