Kingspan forecasts 17% hike in trading profit

Specialist building materials group Kingspan expects to see a near 20% increase in trading profit this year, despite management remaining cautious over macroeconomic conditions.

In its third-quarter trading update, published yesterday, the Cavan-based building insulation provider said it expects trading profit for 2014 to come in at around €144m, which would represent a 17% increase on last year’s levels.

However, management warned that the current seasonally-important fourth quarter is going up against a tough comparable period, with the last three months of 2013 having been particularly strong for the business. It added that the optimism seen earlier in the year within its main markets “appears to have waned in recent months”, particularly in Europe.

“Whilst our business continues to perform strongly, we nonetheless are mindful of what are currently more tempered 2015 economic forecasts, and remain focused on driving the Kingspan proposition, whatever the macro climate,” management said.

In all, Kingspan’s third-quarter update delivered a strongly upbeat message. The company reported a 5% year-on-year increase in group revenue for the first nine months of this year, to €1.39bn, and said that thirdquarter sales, alone, were up by 7% on an annualised basis.

Each of the group’s divisions — except access floors — saw revenue jumps in the nine months to the end of September.

The main insulated panels unit saw a 9% rise (8% up in the third quarter), while revenues were up by 3% in insulation boards and the environmental division saw a 1% sales increase. Revenue in the access floors unit fell by 4%, year-on-year, in the nine-month period, but third quarter sales for this division were up by 11% on the same period last year and it saw improvements in the US and British markets, the latter helped by growing momentum in the office construction sector.

Kingspan’s net debt levels — as of the end of September — stood at €107.7m, just under €40m lower than at the same point in 2013.

“The fourth quarter is a seasonally cash generative period and this would indicate net debt levels by year-end in the region of €140m, after taking account of the acquisitions of Pactiv Insulation and PAL. These insulation board businesses were separately acquired in October for a combined consideration of €77m,” management said.

Analyst reaction to Kingspan’s update was positive. Davy Stockbrokers’ Flor O’Donoghue said it showed “a very solid” third quarter was witnessed.

“While it is clearly not immune to external factors, there remains much to admire about Kingspan. It offers excellent exposure to the long-term trend of making buildings more sustainable; it has a high-quality product range, with a number of market-leading positions and a wide geographical base; and it has significant balance sheet capacity,” he added.

Indeed, when Kingspan initially announced its recently completed takeover of the building insulation division of Pactiv, in August, management suggested it had up to €500m to spend on acquisitions without harming the group’s balance sheet and had the appetite for several more deals — with North America, Brazil, and mainland Europe earmarked for company growth.