Kingspan to report first fall in earnings in six years

KINGSPAN, the leading player in wooden constructions in Europe, is expected to report its first fall in earnings since the first half of 2002.

Due to report first-half figures on August 27, the group has already flagged a significant dip in earnings for the first half of the financial year.

Davy Stockbrokers is forecasting diluted adjusted earnings per share of 37c, a 27% decline on the H1 2007 result.

In a note yesterday it said the group’s business mix explains the pressures it is currently facing.

The bottom line is that over 70% of its 2007 revenues were in Britain and Ireland, with most of the group’s exposure to new building projects.

Traditionally the Cavan-based group’s focus has been as suppliers to the non-residential sectors of construction.

But its investment in off-site has meant that exposure to new homebuild markets has also been increasing.

And with both the British and Irish markets seriously in the doldrums, that points to weaker earnings, according to Davy.

The brokers say that sales my hold up reasonably well, but margins will present the real problem for the group in the period ahead.

Interim results yesterday from SIG — a leading insulation specialist — showing its Irish subsidiary was the only part of the group not to grow first half sales, is a taster of what is to come for companies active in the construction and related sectors, analysts said.

In that context Kingspan in its most recent trading update, covering the start of the year to mid-May, said that on a constant currency basis sales were flat year-on-year.

But the difficulty for the group as for other players in the sector is that raw material costs, especially steel, are rising.

On top of that, the group has spare capacity in insulation boards division as demand falls.

“We are forecasting that full-year margins will fall from 12.7% to 10.3% this year, and the downward trend should be evident in the first-half results.

“However, a healthy balance sheet is a major plus, and the share buyback will help share price performance,” said one analyst.

Davy also noted the group has entered the present downturn with a very healthy balance sheet.

In addition, the ongoing share buyback should support the share price.

Kingspan has repurchased just over 3% of its equity since mid-June, and can buy back up to 10%.

In a day when the market was down nearly 2% Kingspan’s stock rose 11c to close up 1.68% at €6.64.

Last week Goodbody Stockbrokers warned of tough times ahead.

“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,” said analyst Robert Eason of Goodbody.