Company Reports

Price deflation in thermal insulation product markets has continued in early 2024 as suppliers pass through significantly lower raw materials prices to customers. Consequently, first-quarter organic sales fell for Kingspan’s insulation panels and insulation boards divisions—which together account for approximately 80% of group EBIT—contracting by 9% and 14%, respectively. The first-quarter contraction in selling prices masked modest volume growth for both the insulation panel and insulation board businesses—a resilient outcome given presently soft construction sector conditions.

No-moat Kingspan released fourth-quarter 2023 results that tracked our expectations, delivering full-year 2023 EBITA of EUR 877 million, up 7% year on year on a constant-currency basis, largely aligning with our full-year forecast. In 2023, globally weakened construction activity and price deflation—as raw material prices declined—drove respective full-year sales declines of 9% and 8% for Kingspan’s insulation panels and insulation board segments. The two segments are Kingspan’s largest businesses, together accounting for about 85% of group EBIT. Notwithstanding, Kingspan’s profit margins firmed, with full-year 2023 EBITA margin increasing 80 basis points to 10.8%, as profit margins for the insulation panels segment, and Kingspan’s smaller light, air and water, roofing and waterproofing, and data and flooring segments widened. Of note, the insulation panel segment's profit margin benefited from positive sales mix shift—toward Kingspan’s more innovative insulation product range, including QuadCore, which now accounts for 18% of insulated panel volumes. Consequently, the insulation panel segment’s EBITA margin rose—by 1.6 percentage points year on year to 12.2%—despite the cyclical challenges presented by otherwise weak construction activity.

Kingspan Group is a leading supplier of insulation products and systems, which we think is well positioned to benefit from secular tailwinds in the form of built environment energy efficiency standards that are on the rise globally. Today, Kingspan is a global business with over 210 manufacturing sites spread across more than 80 countries. Kingspan’s brands resonate positively with risk-averse architects and other specifiers. Kingspan is acquisitive, having allocated significant capital to merger and acquisition targets over the preceding decade to broaden its geographic reach, supplementing organic investment in its manufacturing footprint. Acquisitions in recent years have also focused on expanding Kingspan’s product scope beyond insulation. As a consequence, Kingspan offers a comprehensive suite of products and systems for the broader building envelope—which represents the frontline in the battle to reduce a building’s greenhouse gas emissions—which also includes flooring, roofing, and waterproofing systems.

We initiative coverage of Kingspan Group with a EUR 61 fair value estimate and no economic moat rating. As a global leader in insulation products and systems, we think Kingspan is ideally positioned to benefit from the secular tailwind offered by built environment energy efficiency standards that are on the rise. Indeed, the reduction of carbon emissions emanating from the built environment is a key element of the ongoing decarbonization of the global economy. In turn, tightened operational carbon emission requirements for newly constructed buildings offer Kingspan a significant growth opportunity given that higher levels of thermal insulation are key to improving the energy efficiency of the built environment. While we think this will drive strong earnings growth over the medium term, Kingspan shares screen expensively and trade at a 27% premium to our valuation. We also assign Kingspan a High Morningstar Uncertainty Rating—owing to its exposure to volatile construction end markets—and a Standard Morningstar Capital Allocation Rating.