Kingspan earnings forecast cut

KINGSPAN, the largest timber-frame building manufacturer in Ireland and Britain, had its earnings forecast for the next two years cut sharply by 22% and 28%.

The cut by Goodbody Stockbrokers saw 5.26% wiped from the group’s share price in Dublin, which closed at €7.20, down 40c on the day.

Earnings this year for the group, best known for its industrial insulation products, were left unchanged.

In a separate development, Qualceram Shire, the bathroom suppliers group with big exposure to the British market, saw its shares marked down more than 25% to 27c.

Kingspan’s revised earnings are based on the deteriorating outlook for the group in Britain where the building sector has tanked.

It also reflects the sharp downward revision by Goodbody economist Dermot O’Leary for growth in the Irish economy, which he says will go into recession with negative growth of 2.2% likely this year.

This is a case of “short-term pain but long-term gain” for the group, Goodbody analyst Robert Eason said. Earnings will be 62c below earlier forecasts for 2009 and 64c less than the broker’s previous 2010 earnings forecast.

The new figures reflect an examination of previous British non-residential construction cycles that account for about 30% of Kingspan’s sales, Mr Eason said.

In that sector the peak-to-trough range can be 30%-60%, and the broker has allowed for a fall of about 50% in its latest analysis for both of the group’s key markets.

The broker says the future still looks good for the group in the medium-term, underpinned by increasing penetration rates of existing markets, entry into new markets and a favourable regulatory backdrop, which can be funded by one of the strongest balance sheets in the sector.

In the immediate future the industry faces tough conditions across the European building materials sector due to a slowdown in demand compounded by margin pressures from higher input costs.

“Therefore, there is still significant downside risk to sector forecasts and, as a result, it is likely to continue to trade towards the lower end of its historical range. As such, we continue to take a low conviction stance on the sector,” Mr Eason said.

Eason expects the share price to range between €5.25 and €7.70 in the period ahead, placing the shares at the lower end of the historical trading ranges for the company and the sector.

As the market recovers the price is likely to trade up to €10.20.