Former Kingspan target tumbles on profit warning

Belgian company Recticel, part of which Cavan-based building insulation group Kingspan tried to buy for €700m earlier this year, has issued a profit warning, sending its shares tumbling by nearly 6%.

Recticel makes fillings for mattresses and car seats as well as insulation products. It said in its third-quarter trading update that it expects to see a 5%-10% like-for-like drop in adjusted earnings for this year. It previously guided for earnings to be in line with the previous year.

The company said it was feeling the pinch in the ‘automotive’ and ‘comfort’ markets and that while volumes remain strong in the insulation division, “intense price competition” is weighing on margins.

Recticel warned that the economic and geopolitical environment remains “highly volatile and increasingly uncertain”, but said it is in a strong financial position and can adapt to rapidly changing market conditions.

Kingspan had a €700m approach for Recticel’s insulation and flexible foams division rejected in April and indicated it would not be returning with a revised offer even though the Belgian group said it would be open to a higher bid.

The Cavan company made no further comment about Recticel on the back of the Belgian company’s trading update.

Just over a month ago, on the back of the publication of a strong set of first-half results, Kingspan said it had a very healthy acquisition pipeline, with specific takeover targets identified, and hoped to announce further buys before the end of the year.

Earlier this month, it spent €42m on buying a subsidiary from UK counterpart SIG.

However, that deal is likely to be only the tip of the iceberg, with Kingspan having a warchest of around €600m available in order to spend on boosting its North American and continental European businesses in order to stave off weaknesses in the UK and German markets.

Kingspan itself is due to update on trading in a little over two weeks with analysts eager to see how it is managing the slower market backdrop that has been hampering many of its peers.