[email protected] / +353 1 6149004 Both cyclical and structural; 2011 … · 2018. 1. 24. · March 1, 2012 Equity Report: FY results Kingspan Group Price: 813c Both cyclical

March 1, 2012

Equity Report: FY results

Kingspan Group Price: 813c

Both cyclical and structural; 2011 results a good base on which to build; upgrading current year estimates

www.davy.ie Bloomberg: DAVY<GO> Research: +353 1 6148997 Institutional Equity Sales: +353 1 6792816 Davy Research

Rating: OUTPERFORM Issued 12/05/11

Previous: NEUTRAL Issued 30/06/09

Flor O'Donoghue florence.o'[email protected] / +353 1 6148741

Robert Gardiner [email protected] / +353 1 6149004

Barry Dixon [email protected] / +353 1 6148922

Tim Cahill [email protected] / +353 1 6148875

Share Price Performance

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Kingspan price (c) Price rel E300 construction & build ing materials (rhs)

Key financials (€m) Year end Dec11P Dec12F Dec13F Revenue 1546.9 1596.5 1699.4EBITDA 133.6 148.3 166.5PBT 77.8 91.8 112.7EPS Basic 37.1 44.0 54.2EPS Diluted (Adj) 39.2 46.0 56.0Cash EPS (Diluted) 61.5 69.5 79.5Dividend 12.0 14.4 17.3NBV 428.7 459.6 497.0Valuation P/E 20.7 17.7 14.5FCF Yld (pre div) (%) 5.3 5.4 5.9Dividend Yield (%) 1.5 1.8 2.1Price / Book 1.9 1.8 1.6EV / EBITDA 11.7 9.9 8.5Group Int. Cover (x) 6.9 8.8 13.2Debt / EBITDA (x) 1.3 0.8 0.3

Company data Reuters/Bloomberg/Xetra KSP.I/KSP ID/KRXSector Building componentsShares (m) 167.0Daily No. Shares Traded (m) 0.381Free Float (%) 75.552 Week High/Low 813/565Capital Structure Mkt. Cap (€m) 1357.7Net Debt/(Cash) 111.8Deferred consideration/debt-related

N/A

Pref Shares/Non Eq Min N/AMinority interests 6.1E.V. (€m) 1475.6

Recent research and research resources Recent research and financial data on Kingspan Group Sector research and data on Building components

Cyclical recovery AND structural growth to play for • We believe there is a very attractive twin cyclical and structural

dynamic to the Kingspan investment case. • The cyclical aspect is as follows: volumes still over 20% below peak

levels; an operating margin, at just over 6%, that can ultimately get back to over 10%; and the interplay that as volumes rise the margin recovery gains momentum and Kingspan leverages its surplus capacity (capacity utilisation of just circa 60% at present).

• The structural opportunity relates to the following: the drive to make buildings more energy efficient; the role of changing building regulations; Kingspan's innovative and cutting edge products; and the deepened geographic base of the group (UK and Ireland now account for under 45% of revenues).

Upgrading current year forecasts after very impressive 2011 results; balance sheet health provides options

• EPS growth of 25% in 2011 was 6% ahead of forecast. Kingspan's year was characterised by volume and pricing growth, organic margin expansion and the successful integration of the CRH deal.

• We upgraded our 2012 earnings forecast by 8%. Diluted EPS is now forecast at 46c (+17% on 2011). Moreover, in the absence of deals (although acquisitions are a possibility), Kingspan's net debt/EBITDA will fall below 1x at end-2012.

Stock does not look cheap after rise of over 25% so far this year, but improving returns will drive further gains

• On a short-term P/E basis (circa 18x), Kingspan is clearly not cheap, although it is trading at its average EV/sales multiple.

• But we believe improving returns (ROIC back above WACC) underpin the investment case. Long-term ROIC/WACC averages 2.35x; evidence that this spread is returning will ultimately justify a share price of 1200c.

• Please refer to important disclosures at the end of this report. J&E Davy, trading as Davy is regulated by the Central Bank of Ireland. Davy is a member of the Irish Stock Exchange, the London Stock Exchange and Euronext. For branches in the UK, Davy is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request. All prices are as of February 28th. All authors are Research Analysts unless otherwise stated. For the attention of US clients of Davy Securities, this third-party research report has been produced by our affiliate, J&E Davy.

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Equity Report: Kingspan Group March 1, 2012

2 Davy Research

A cyclical recovery AND a structural growth story 2011 showcased Kingspan's growth (volumes up over 6%) and pricing power (up over 8%, despite largely challenging market conditions). The group is in excellent financial health (net debt/EBITDA of 1.3x) and has expanded the scope of the business (UK/Ireland now account for under 45% of group revenues). What makes Kingspan exciting is that there is much more to play for. We believe there is a twin cyclical and structural dynamic to the Kingspan investment case.

Cyclical The cyclical can be summarised as follows: Kingspan's volumes remain over 20% below peak levels (despite

recovering by almost 6.5% in 2011). The group's operating margin, at just over 6%, can ultimately get back

to over 10% (having peaked at 13.3% and averaged 11.4% in the 1998-2008 period).

The interplay between both is such that as volumes rise the margin recovery gains momentum and Kingspan leverages its surplus capacity (capacity utilisation of just circa 60% at present).

That Kingspan's operating costs/revenues remain well above the long-term average is one example of the operating leverage potential as volumes recover.

We believe there is a twin cyclical and structural dynamic to the Kingspan investment case

Figure 1: Kingspan operating costs/revenues (%)

15.0%

16.5%

18.0%

19.5%

21.0%

22.5%

1994 1996 1998 2000 2002 2004 2006 2008 2010

Operating costs / revenues Operating costs / revenues average 1994-2008 Source: Kingspan; Davy estimates


3 Davy Research

Structural Many building materials businesses have similar cyclical recovery themes to play out as is the case with Kingspan. But what really separates Kingspan is its medium-term structural opportunity. This can be summarised as follows: There is a need, and a greater acceptance of this need, to make

buildings more energy efficient (buildings account for approximately 40% of over energy usage).

Kingspan has over the years exhibited the ability to innovate and bring to market insulation products with superior operating qualities (which brings pricing power) that help efforts to make buildings more energy efficient.

The drive to make buildings more energy efficient crucially has legislative underpinning via periodic changes to building regulations1.

Typically, the more stringent the (revised) building regulation, the more Kingspan benefits.

The group has expanded the geographic base of its business and now has a broader revenue base (including positions in markets where the use of energy efficient building materials is, as yet, largely undeveloped).

All of this can enable Kingspan to achieve long-term organic growth above that of the overall construction sector.

We would point out that Kingspan has a track record in impressive top-line growth: organic revenue growth averaged 11% per annum between 2000 and 2007. Balance sheet firepower the third leg to the investment case

The discussion in this report is framed on the Kingspan business as it stands today. But having undertaken deals of significance in 2008 (Metecno) and 2010 (CRH insulation assets, completed in early 2011), it is possible that Kingspan may acquire again this year. More specifically, it is likely that non-core downstream insulated/ sandwich panel assets currently under the ownership of Thyssenkrupp and Blue Scope may be disposed of. Although details in relation to either are very limited, the attractions from a Kingspan perspective for acquiring would be: further consolidation of the insulation market (which would augment

the pricing dynamic); the addition of further scale; and an enhanced market position in areas where Kingspan is in the process

of deepening its presence (North America and/or Western Europe).

1 See Appendix I for UK example

Kingspan has a track record in impressive top-line growth

It is possible that Kingspan may acquire again this year

Reasons why Kingspan may make further acquisitions

Further consolidation of insulation market

Addition of further scale

Enhanced market position


4 Davy Research

What we do know is that Kingspan has considerable acquisition capacity. Kingspan has converted an average of 50% of its EBITDA into free cash flow in the past five years (59% in 2011), a conversion rate that compares favourably in a peer context. It also never had to raise equity at the worst of the crisis in H 2009.

Our revised forecast is that Kingspan's net debt could move towards €110m by the end of 2012, leaving net debt/EBITDA at under 1x. If we assume a theoretical acquisition(s) multiple of 6x EBITDA, then Kingspan could spend up to €275m this year and still keep net debt/ EBITDA at 2x (on a pro-forma basis).

In any case, we expect Kingspan to remain cash generative. As noted, it has significant spare operational capacity. Reflecting this, we expect capital expenditure to remain below depreciation for a few more years, especially as Kingspan invested so heavily between 2006 and 2008.

Figure 2: Kingspan free cash flow (FCF) (€m) and FCF/EBITDA (%)

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Kingspan free cash flow (before dividends) (€m) Free cash flow / EBITDA (rhs) Source: Kingspan; Davy estimates

Kingspan's net debt could move

towards €110m by the end of 2012, leaving net debt/EBITDA at under 1x

Figure 3: Kingspan net debt (€m) and net debt/EBITDA (x)

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Source: Kingspan; Davy estimates

We expect Kingspan to remain cash

generative


5 Davy Research

Valuing Kingspan At circa 18x 2012 forecast earnings, it is ostensibly hard to make a strong case for Kingspan on a near-term P/E multiple basis. Kingspan's long-term average forward P/E multiple is just under 13x, which has risen to around 16x over the past five years.

But given the consistently high multiple Kingspan has traded on in recent years, there is clearly a recognition that current earnings are cyclically depressed (EBIT fell over 70% from peak-to-trough). We would also point out that Kingspan's rating is similar to that of its best peer, Rockwool, which has also attracted a premium rating.

Figure 4: Kingspan capital expenditure/depreciation (€m)

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Figure 5: Kingspan forward P/E multiple (x)

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Kingspan forward P/E (x) Average (x)

Source: FactSet

Given the consistently high

multiple Kingspan has traded on in recent years, there is clearly a recognition that current earnings are cyclically depressed


6 Davy Research

In addition, Kingspan's EV/sales multiple is currently actually close to the group's long-term average. This suggests that the stock may be fairly priced but is not over-valued.

Regardless of short-term multiples, we think there is still a way to make a valuation case for Kingspan. Take Kingspan's return on invested capital (ROIC). We would note the following: The group's ROIC last year was 8.5%, up from 7.8% and comfortably

better than our 8.2% forecast. WACC was around 8% (Kingspan believes it was closer to 7%), which

implies a positive ROIC/WACC spread for the first time since 2008. We expect ROIC will be above 9% this year and over 10% in 2013.

Figure 6: Kingspan and Rockwool forward P/E (x)

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Kingspan forward P/E (x) Rockwool Forward P/E (x) Source: FactSet

Figure 7: Kingspan EV/sales (x)

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Kingspan forward EV/sales (x) Average Source: FactSet

Regardless of short-term multiples, we think there is still a way to make a valuation case for Kingspan


7 Davy Research

Kingspan's ROIC averaged 18% between 1998 and 2008 (and got as high as 23% in 2007), which highlights where returns could get back to over time.

From a valuation perspective, the longer-term upside can be outlined as follows: Kingspan's long-term ROIC/WACC average is 2.35x. IC (invested capital) is currently around €950m. With Kingspan

operating at only circa 60% capacity, there should be no great need to materially increase the IC base as volumes recover;

Applying a multiple of 2.35x to an IC base of €950m yields a target €2.2bn Enterprise Value (EV).

If we subtract net debt of €170m, the residual equity value is around €2bn (circa 1200c per share), which is substantially above the current equity value of circa €1.4bn.

That said, it should be pointed out that we expect Kingspan's ROIC/ WACC to get to only 1.2x this year. Clearly, there is some distance to go before Kingspan can get back to its long-term average.

Risks There are risks, especially in the context of a stock that has added over 25% already this year, some of which we would identify as: Kingspan's cyclical recovery being further delayed due to persistently

weak end-markets; Kingspan has an above-average exposure to new build (around 80% of

revenues) and specifically to late-cycle construction projects (notably in the raised access flooring operation);

the stock's elevated rating leaves little room for disappointment.

Figure 8: Kingspan ROIC and WACC

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Return on invested capital WACC Source: Davy estimates

Risks

Further delays in Kingspan's cyclical recovery due to weak end-markets

Its above-average exposure to new build and to late-cycle construction projects

Its elevated rating leaves little room for disappointment


8 Davy Research

Forecast revisions: upgrading 2012 estimates but performance hinges on volumes In framing revised 2012 estimates, our current sense is that Kingspan's top-line growth will be muted this year. Factors include: the higher base; weak conditions continuing in a number of markets (Ireland and the

Netherlands stand out); generally moderating volume and order book growth; a modest dilution from CRH businesses sold during 2011.

Table 1: Kingspan recent volume evolution

H1 2011 2011

- UK, Ireland & Western Europe insulated panels 16% 12%

- Central & Eastern Europe insulated panels 13% 12%

- North America insulated panels 7% 2%

Insulated panels 14% 11%

Insulation boards 4% -2%

Raised access flooring -4% -11%

Group 10% 6%


From the perspective of trading profit, the base is the 2011 result (EBIT of €90.9m). A better result from the CRH assets should add another €5.3m this year and the effective expiry of the warranty issue at the end of the first half of 2011 should yield an extra €2m or so. This brings EBIT to just over €98m. From here, it is a question of what Kingspan can achieve organically. To this end, the positives are: further market share gains and general top-line progression; the benefit of operational leverage; continuing growth (albeit at a more moderate rate) in the core

insulated panels divisions (the one area in which Kingspan has reasonable visibility); and

the possibility of the pass-through of further input price inflation from Q2 on.

Against this, the following factors have to be taken into account: global uncertainty and general weakness in many construction sectors

(such as public spending); some specific market weakness; and the risk of some near-term margin squeeze due to the above mentioned

input price inflation and sector overcapacity which will make it difficult to recover higher costs.


9 Davy Research

All things considered, we believe a revised EBIT of €104m for 2012 is a realistic target, up from a previous forecast of €94m. We are therefore forecasting EBIT growth of 14% this year, around 40% of which can be attributed to a better contribution from the CRH assets. This converts into EPS of circa 46c. If achieved, this would imply another year of impressive earnings growth (up 17%).

Table 2: Summary of headline Kingspan forecasts

2009 2010 Chg yoy 2011 Chg yoy Previous 2012F

2012F Chg on previous

Chg yoy 2013F Chg yoy

Group revenues (€m) 1125.5 1193.2 6% 1546.9 30% 1531.7 1596.5 4% 3% 1699.4 6%

- Insulated panels 593.9 638.5 8% 758.0 19% 764.1 800.8 5% 6% 851.9 6%

- Insulation boards 215.3 248.2 15% 460.4 85% 421.0 457.3 9% -1% 489.3 7%

- Insulation 809.2 886.7 10% 1218.4 37% 1185.0 1258.1 6% 3% 1341.2 7%

- Raised access floors 147.6 134.8 -9% 126.2 -6% 131.2 130.1 -1% 3% 139.4 7%

- Environmental & Renewables

168.7 171.7 2% 202.3 18% 215.4 208.4 -3% 3% 218.8 5%

Group EBITA 67.1 72.0 7% 95.7 33% 98.5 108.4 10% 13% 126.6 17%

- Insulated panels 26.3 35.8 36% 50.5 41% 53.5 55.8 4% 10% 63.6 14%

- Insulation boards 13.5 16.7 24% 25.7 54% 31.3 31.8 1% 24% 37.3 17%

- Insulation 39.8 52.5 32% 76.2 45% 84.9 87.5 3% 15% 100.9 15%

- Raised access floors 25.5 18.6 -27% 12.8 -31% 7.9 11.1 40% -14% 13.2 20%

- Environmental & Renewables

1.8 0.9 -50% 6.7 644% 5.8 9.8 69% 47% 12.5 27%

Amortisation -4.4 -4.6 -4.7 -5.0 -4.7 -4.7

Group EBIT 62.7 67.4 8% 90.9 35% 93.5 103.6 11% 14% 121.9 18%

Net interest charge (€m) -6.0 -11.7 96% -13.1 12% -10.0 -11.8 18% -10% -9.2 -22%

Pre-tax profits (underlying) 56.7 55.7 -2% 77.8 40% 83.5 91.8 10% 18% 112.7 23%

Tax -8.7 -6.6 -24% -14.9 126% -15.5 -17.4 13% 17% -21.4 23%

Minorities 0.0 0.4 1.0 0.0 1.0 1.0

Attributable profit 48.0 48.7 1% 61.8 27% 68.1 73.4 19% 90.2 23%

Diluted adjusted EPS (c) 28.2 31.3 11% 39.2 25% 42.5 46.0 8% 17% 56.5 23%

Net dividend (c) 0.0 10.0 11.0 10% 14.4 12.5 -13% 14% 14.5 16%


Given benign market conditions, and the inherent leverage (capacity utilisation circa 60%, margins well below the long-term average), we would not rule out additional upside. Note 2011 EPS ultimately came in over 20% higher than what was forecast at the start of the year! That said, any further progress will be contingent on volume growth.

Volumes key to earnings sensitivity By way of sensitivity, we are currently forecasting circa 3% volume growth this year. We estimate that every 1% change affects EBIT by around £3-4m, assuming the impact of operating leverage. Hence if Kingspan was, for example, to match volume growth rate of 6% in 2011, EBIT this year could be as high as €115m.

We believe a revised EBIT of €104m for 2012 is a realistic target, up from a previous forecast of €94m

Given benign market conditions, and the inherent leverage, we would not rule out additional upside


10 Davy Research

Key messages from the post results conference call

The order book in insulated panels is currently ahead year-on-year (yoy) by a high-single-digit percentage.

Weather has affected activity in Europe/UK in the first eight weeks of the year, having helped the 2011 trading result to the tune of €5m.

Raw material price increases will need to be pushed through in Q2; the increase needed will be €20m overall and will require sales price increases of 5% in insulated panels and 8-10% in insulation boards to compensate.

The CRH business did better than expected in 2011 with a trading profit of €6.7m against an initial guidance of €5m (the weather helped this result).

CRH should still contribute EBIT of €12m in 2012 (as was previously flagged), which clearly acts as a decent support to trading profit (the increment adds 5.5% to the 2011 result).

Ireland and the Netherlands (Benelux is circa 11% of group revenues) are the group's weakest markets at present.

Acquisitions/development

It was mentioned that there are public auctions for businesses that Thyssenkrupp and Blue Scope (Metl-span) are disposing of. Kingspan is interested in both but so too are many other parties.

A Next Generation insulation product will be launched by Kingspan mid year. This will be 60% thinner than Kooltherm and 70% thinner than PIR. Initially, it will operate in a very niche position and will take five to seven years to gain critical mass. Kingspan will initially outsource production but expects to have its own production capability by mid-2013 (probably in the UK).

Kingspan is currently exporting to Russia via Poland; however, with heavy duty imports, the opportunity is really only at the specification end of the market. But as Kingspan is very optimistic about the potential in Russia, it will ultimately have to establish a manufacturing presence. This is something to watch out for over time.

Competition/capacity

Kingspan currently has a 55-60% capacity utilisation rate. This highlights the extent of the latent capacity in the group (and, consequently, the potential operating leverage).

Globally in the insulation sector, utilization is significantly below 50%. Not surprisingly in this context, no capacity of any significance is being added.

Rising competition in US panels was mentioned in the results announcement. While there are no new entrants, there is evidence that single-skin manufacturers are starting to invest in insulated panel capacity. While an increase in competition, it is positive in that it will help establish insulated panels as a more mainstream product.

Weather has affected activity in Europe/UK in the first eight weeks of the year, having helped the 2011 trading result to the tune of €5m

CRH should still contribute EBIT of €12m in 2012, which clearly acts as a decent support to trading profit

Ireland and the Netherlands (Benelux is circa 11% of group revenues) are the group's weakest markets at present


11 Davy Research

Finances/returns

Net debt fell by €45m in H2 and was €25m lower than previously guided at year-end.

The reduction in net debt was flattered by lower inventory at year-end due to the strong finish to 2012. In addition, steel stocks were lower than end-2010.

Working capital/sales in 2011 was 12.2% but 13% is a more sustainable position.

With net debt/EBITDA of 1.3x at end-2011, and further cash generation expected this year, Kingspan – in the absence of acquisitions – will be in an even stronger position financially by the end of 2012. In addition, Kingspan already has financial headroom of €460m.

The debt schedule is also favourable with no debt maturing until 2015.

According to Kingspan, its return on capital employed improved to 10% last year (2010: 6.6%; 2009: 8.4%). This is positive evidence that improved earnings are translating into much better returns.

Miscellaneous

The Borealis case judgement is now likely in mid-year. The income statement hit over the past few years has been close to €30m.

The warranty expires at end-2012, although Kingspan provisioned for remaining claims in H1 2011 (this could therefore help the H1 2012 EBIT result by €2-2.5m).

Reflecting the broadening nature of the group, the UK accounted for under 40% of revenues in 2011. Mainland Europe now accounts for 37%, up from 29% in 2010. The growth outside of the UK and Ireland is illustrated in the following chart.

With net debt/EBITDA of 1.3x at end-2011, and further cash generation expected this year, Kingspan – in the absence of acquisitions – will be in an even stronger position financially by the end of 2012

Figure 9: Kingspan non-UK and Ireland revenues (€m)

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12 Davy Research

Summary of 2011 results: earnings 6% better than expected

Table 3: Kingspan 2011 first-half and full year results summary

H1 2010 H2 2010 2010 H1 2011 Chg H2 2011 Chg 2011 Chg 2011F Var

Group revenues (€m) 558.7 634.5 1193.2 736.0 32% 810.9 28% 1546.9 30% 1511.1 2%

EBITA 35.7 36.3 72.0 44.2 24% 51.4 42% 95.7 33% 89.0 7%

Non-trading items 0.0

Goodwill -2.6 -2.0 -4.6 -2.5 -4% -2.2 12% -4.7 3% -5.0 -5%

EBIT 33.1 34.3 67.4 41.7 26% 49.2 44% 90.9 35% 84.0 8%

Exceptional items 0.0

Net Interest -7.6 -4.1 -11.7 -5.6 -27% -7.6 84% -13.1 12% -11.5 14%

Pre-tax profits (underlying) 25.5 30.1 55.7 36.2 42% 41.6 38% 77.8 40% 72.5 7%

Pre-tax profits 25.5 30.1 55.7 36.2 42% 41.6 38% 77.8 40% 72.5 7%

Tax -4.2 -2.4 -6.6 -7.0 65% -7.9 232% -14.9 126% -13.8 8%

Profit after tax 21.3 27.8 49.1 29.2 37% 33.7 21% 62.9 28% 58.7 7%

Minorities 0.0 0.4 0.4 0.0 1.0 1.0 0.0

Attributable profit 21.3 28.2 49.5 29.2 37% 34.7 23% 63.9 29% 58.7 9%

Basic EPS (c) 12.8 16.4 29.2 17.5 37% 19.6 20% 37.1 27% 35.2 5%

Diluted adjusted EPS (c) 14.0 17.5 31.6 18.4 31% 20.8 19% 39.2 24% 37.0 6%

DPS (c) 4.0 6.0 10.0 4.5 6.5 8% 11.0 10% 12.0 -8%


For 2011, Kingspan reported revenues of €1.55bn, operating profits of €91m and diluted adjusted EPS of 39.2c. EPS has now risen almost 40% from the 2009 trough.

We had forecast diluted adjusted EPS of 37c, hence the outcome was 6% above expectations. It also implies that Kingspan achieved earnings growth of 19% yoy in H2 and 24% for the full year.

A second-half dividend of 6.5c per share was declared, bringing the full-year dividend to 11c.

Figure 10: Kingspan diluted adjusted EPS (c)

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Diluted adjusted EPS (c) Source: Kingspan

The EPS outcome was 6% above

expectations


13 Davy Research

Kingspan's revenues rose 30% last year, 2% ahead of our forecast. Of this, 14% was organic. As the following chart illustrates, the half-yearly trajectory is positive (even after allowing for the impact of CRH).

Net debt at year-end was €170m compared to our forecast of €195m (which was company guidance), reflecting the strong end to the year. The group enters 2012 in a healthy position financially with net debt/EBITDA of just 1.27x.

The operating profit result was also comfortably better than our forecast of €84m and company guidance of €82-85m, with the favourable weather providing the platform for a strong end to the year.

The group's operating margin (before goodwill) rose from 6.0% to 6.2% (and was up 70 basis points yoy in H2 to 6.4%). It was also the first time Kingspan's EBITA margin in H2 exceeded the first half since 2007.

Figure 11: Kingspan half-yearly revenues

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The operating profit result was comfortably better than our forecast of €84m and company guidance of €82-85m


14 Davy Research

Divisional summary

Table 4: Kingspan divisional half-year and full year results summary

H1 2010 H2 2010 2010 H1 2011 Chg 2011 H2 Chg 2011 2011F

Revenues

- Insulated panels 287.0 351.5 638.5 350.4 22% 407.6 16% 758.0 19% 739.3

- Insulation boards 119.9 128.3 248.2 222.6 86% 237.8 85% 460.4 85% 433.1

Insulation 406.9 479.8 886.7 573.0 41% 645.4 35% 1,218.4 37% 1,172.4

Raised access floors 68.4 66.4 134.8 65.1 -5% 61.1 -8% 126.2 -6% 127.6

Environmental & Renewables 83.4 88.3 171.7 97.9 17% 104.4 18% 202.3 18% 211.2

Group revenues (€m) 558.7 634.5 1193.2 736.0 32% 810.9 28% 1546.9 30% 1511.1

EBITA

- Insulated panels 13.7 22.1 35.8 21.7 58% 28.8 30% 50.5 41% 50.3

- Insulation boards 10.7 6.0 16.7 14.5 36% 11.2 87% 25.7 54% 23.8

Insulation 24.4 28.1 52.5 36.2 48% 40.0 42% 76.2 45% 74.1

Raised access floors 10.3 8.3 18.6 6.8 -34% 6.0 -28% 12.8 -31% 10.8

Environmental & Renewables 1.0 -0.1 0.9 1.2 20% 5.5 6.7 4.1

Group EBITA 35.7 36.3 72.0 44.2 24% 51.5 42% 95.7 33% 89.0

Margins

- Insulated panels 4.8% 6.3% 5.6% 6.2% 7.1% 6.7% 6.8%

- Insulation boards 8.9% 4.7% 6.7% 6.5% 4.7% 5.6% 5.5%

Insulation 6.0% 5.9% 5.9% 6.3% 6.2% 6.3% 6.3%

Raised Access Floors 15.1% 12.5% 13.8% 10.4% 9.8% 10.1% 8.5%

Environmental & Renewables 1.2% -0.1% 0.5% 1.2% 5.3% 3.3% 1.9%

Group 6.4% 5.7% 6.0% 6.0% 6.4% 6.2% 5.9%

% EBIT

Insulation 68% 77% 73% 82% 78% 80% 83%

Raised Access Floors 29% 23% 26% 15% 12% 13% 12%

Environmental & Renewables 3% 0% 1% 3% 11% 7% 5%


Insulated panels: EBITA rose 41% to €50.5m on revenues of €758m (+19% yoy). Organic revenue growth was 20%, comprising volumes

Figure 12: Kingspan H1/H2 trading margin (%)

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

1994 1996 1998 2000 2002 2004 2006 2008 2010

H1 operating margin H2 operating margin



15 Davy Research

up 11% and pricing/mix up 9%. EBITA was up 30% yoy in H2 and the full-year result was in line with our forecast of €50.3m. The reported incremental margin was 12%; however, after allowing for price inflation, we estimate that the underlying incremental margin was circa 17%.

Insulation boards: buoyed by the addition of the CRH assets, revenues rose 85% yoy to €460m. Organic growth was 9% (volumes -2%; pricing/mix +11%). As expected, the division's operating margin fell (from 6.7% to 5.6%) due to the integration of CRH. However, the H2 trading margin was flat at 4.7%. Trading profits of €25.7m for the year were 8% ahead of our forecast of €23.8m and up 54% yoy. Excluding CRH and pricing, we estimates that while revenues fell, trading profit was held.

Raised access flooring: revenues fell 6% to €126.2m (volumes -11%; pricing/mix +7%) while EBITA declined 31% yoy to €12.8m. Even though the result was better than our EBITA forecast of €10.8m, H2 EBITA was still down 28% yoy, reflecting the late-cycle nature of the division.

Environmental & renewables: revenues were sharply higher at €202.3m (+18% yoy). The division also reported a much improved operating result, with EBITA rising from €0.9m to €6.7m. Of this, €5.5m was generated in H2, helped by the expiry of the warranty issue and the benefit of a large French contract.


16 Davy Research

Appendix I: Overview of 2012 consultation on changes to the building regulations in England Section two: Part L (Conservation of fuel and power) Source: Communities and Local Government, February 2012

Context for proposed building regulatory changes

The UK has committed to reducing its gas emissions by at least 34% by 2020 and by at least 80% by 2050 (relative to 1990 levels).

Circa 45% (27% domestic, 18% non-domestic) of UK carbon dioxide emissions come from buildings (heating/cooling, water heating, lighting).

Summary and relevance: Kingspan a potential significant beneficiary

Between October 2012 and 2013, there are expected to be revisions to building regulations in England. Building regulations are revised periodically with significant changes in 2006 and 2010, for example. The broad aim of regulatory change is to make buildings more energy efficient.

The upcoming changes – which will follow a consultation period – will affect both new build and refurbishment/extension projects, residential and non-residential.

The changes overall should be beneficial for the building materials sector.

Most specifically, insulation products businesses such as Kingspan would be a beneficiary of two proposals in particular:

– a possible requirement of a 20% improvement in the energy performance of new non-residential buildings; and

– the proposed requirement that improved energy performance will be required for all existing domestic buildings which undergo works to add an extension (previously the regulation only related to buildings over 1000m2 in size, which excluded the vast majority of buildings).

While a feature of Kingspan in the coming years will be its international expansion, the UK will remain a very important market for the group (in 2011 it accounted for circa 35% of group revenues).

Hence the proposed regulatory changes, as was the case in the past, can be viewed as a positive for the group in its core market (for example, providing the platform for organic growth and market share gains).


17 Davy Research

These are energy uses covered by the building regulations. Hence if the energy efficiency of buildings needs to be improved, building regulation revisions provide a mechanism for change.

Targets for new buildings (government target/policy for a number of years)

Residential: all new homes are to be built to zero carbon standards from 2016.

Non-residential: all new buildings are to be built to zero carbon standards from 2019.

Existing buildings

Building regulations already have a requirement for energy efficiency improvements on extensions in buildings over 1000m2. No change is proposed to the requirements for consequential improvements in these buildings.

Further improvement in the energy performance of existing buildings will be in tandem with the upcoming Green Deal** scheme.

Timeline targets

October 2012: consequential improvements for domestic extensions come into force (concurrent with launch of Green Deal).

October 2013: regulations on new build, standards for works to existing buildings come into force.

October 2014: other consequential improvements come into force.

Main proposals for new buildings

Potential regulatory changes for new homes will be considered in the context of the move to zero-carbon from 2016. The proposed 2013 changes tighten the CO2 targets for new buildings and will introduce a specific energy efficiency target for new homes.

Two options are proposed for new non-residential buildings: (i) an 11% improvement on Part L 2010; (ii) a 20% improvement on Part L 2010.

The UK government's preferred option for consultation is the 20% uplift.

Main proposals for existing buildings

The principle is that consequential improvements should be required when defined notifiable building work is already planned.

Current improvements are required for buildings over 1000m2. This excludes the vast majority of extensions and conversions carried out each year (estimated at circa 200,000 per annum). Hence it is proposed to apply the requirements for consequential improvements to all existing domestic buildings which undergo works to add an extension and also apply it to increases in habitable space.

It is believed that this proposal can be implemented in conjunction with the Green Deal. The changes should result in an increase in work for small builders.


18 Davy Research

**Green Deal

This is the UK government's flagship policy targeting the reduction of emissions from existing buildings through promoting an increase in retrofit investment.

The Green Deal will create a new financing mechanism (the Energy Company Obligation) to enable private firms to offer domestic and non-domestic consumers energy efficient improvements at no upfront cost.

This cost will be recouped through instalments on the energy bill. However, the 'Golden Rule' of the Green Deal is that the energy bill is

to be no higher than what it was before the energy savings measures were made.

The repayment of the upfront cost will be the difference between the previous bill and what the bill would be based on the energy saving measures. Hence the concept is that the property owner will pay the same energy bill until such time as the upfront cost is paid for.

The framework for the Green Deal is due to be in place by October 2012.

19 Davy Research


Rating: OUTPERFORM Issued 12/05/11

Previous: NEUTRAL Issued 30/06/09

Flor O'Donoghue florence.o'[email protected] / +353 1 6148741

Company profile Kingspan Group Plc is a leading manufacturer of an integrated range of energy conserving building solutions. Kingspan's principal activities comprise the manufacture of insulated panels, rigid insulation boards, architectural facades, raised access floors, engineered timber systems, solar thermal hot water systems and fuel and water storage solutions. The group has manufacturing and sales offices in a number of regions. It main areas of operation are Ireland, the UK, Central and Eastern Europe, North America and Australia. Insulation is by some distance the group's most important activity. Other reporting divisions are raised access flooring and environmental and renewables.

Investment thesis

Kingspan is a European building materials play on improving the energy efficiency of buildings, which account for c.40% of overall energy usage. To this end, Kingspan has leading positions in what can be considered structural growth segments of the building products sector, notably insulation.

Arguably the most exciting medium-term story in the European building materials sector

• Kingspan has a product base that looks uniquely well placed to benefit from the increasing emphasis on the sustainability of buildings. Most significantly, the group has leading positions in the insulation sector through its insulated panels and boards operations.

• Kingspan's products aim to (a) improve the energy performance of buildings, (b) reduce heating and running costs and (c) effectively meet tighter building standards.

• These standards, now largely underpinned by EU-wide legislation, are particularly important in stimulating structural change in the building products market.

Opportunity to deliver strong organic growth • Kingspan's strategic objective is to convert niche areas of the building

products market into mainstream product categories. • The group believes that it can increase its revenues by c.€300m

organically over the medium term, which would add almost 20% to its existing revenue base. This can be achieved through market share gains, facilitated by building regulation changes, new product development and international expansion.

• The latter is another cornerstone of the Kingspan investment case. The group's historic operating base was the UK and Ireland, but Kingspan now has an expanding presence in Europe, including Central and Eastern Europe, North America (specifically in insulated panels) and Australia.

Not immune to cyclical downturns but a cash-generative model • The downside to the Kingspan investment case is that, organic

progress notwithstanding, its exposure is skewed to the more cyclical new-build construction market (and non-residential in particular).

• However, over time we believe Kingspan is capable of generating above-average performance and returns.

• Moreover, the group is bolstered by a very healthy financial position, aided by impressive cash generation.

mailto:florence.o'[email protected]


20 Davy Research

Analysis of Operations Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Revenue (€m)

Insulated Panels N/A N/A N/A 593.9 638.5 758.0 800.7 851.9

Insulation Boards N/A N/A N/A 215.3 248.2 460.4 457.3 489.3

Raised Access Floors N/A N/A N/A 147.6 134.8 126.2 130.1 139.4

Environmental & Renewables N/A N/A N/A 168.7 171.7 202.3 208.4 218.8

Total N/A N/A N/A 1125.5 1193.2 1546.9 1596.5 1699.4

EBIT (€m)

Insulated Panels N/A N/A N/A 26.3 35.8 50.5 55.8 63.6

Insulation Boards N/A N/A N/A 13.5 16.7 25.7 31.8 37.3



Total Operating Profit N/A N/A N/A 67.1 72.0 95.6 108.3 126.6

Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Revenue Analysis (%)

Insulation 0.0 0.0 0.0 52.8 53.5 49.0 50.2 50.1

Off-site & Structural 0.0 0.0 0.0 19.1 20.8 29.8 28.6 28.8

Raised Access Floors 0.0 0.0 0.0 13.1 11.3 8.2 8.1 8.2

Environmental & Renewables 0.0 0.0 0.0 15.0 14.4 13.1 13.1 12.9

Total 0.0 0.0 0.0 100.0 100.0 100.0 100.0 100.0

EBIT Analysis (%)

Insulation N/A N/A N/A 39.2 49.7 52.8 51.5 50.2

Off-site & Structural N/A N/A N/A 20.1 23.2 26.9 29.3 29.5



Total N/A N/A N/A 100.0 100.0 100.0 100.0 100.0


21 Davy Research

Trading summary Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Summary Accounts (€m)

Revenue 1461.2 1863.2 1672.7 1125.5 1193.2 1546.9 1596.5 1699.4

EBITDA 236.0 284.2 202.3 102.9 107.6 133.6 148.3 166.5

Depreciation 42.0 47.6 40.6 35.8 35.6 37.9 39.9 39.9

Amortisation of intangibles 0.0 0.0 4.6 4.4 4.6 4.7 4.7 4.7

Operating profit 194.0 236.7 157.1 62.7 67.4 90.9 103.6 121.9

Share of J.V.'s operating profit 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other income from operations 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Share of associate / JV after-tax profits 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

PBIT before exceptionals 194.0 236.7 157.1 62.7 67.4 90.9 103.6 121.9

Group net interest -8.8 -12.5 -13.9 -6.0 -11.7 -13.1 -11.8 -9.2

Other finance costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total finance costs -8.8 -12.5 -13.9 -6.0 -11.7 -13.1 -11.8 -9.2

Exceptionals 0.0 0.0 -75.1 0.0 0.0 0.0 0.0 0.0

PBT 185.2 224.2 68.1 56.7 55.6 77.8 91.8 112.7

Tax -33.5 -36.9 -24.2 -8.7 -6.6 -14.9 -17.4 -21.4

Minorities (incl. pref. divs.) 0.6 0.0 -1.0 0.0 0.4 1.0 1.0 1.0

Earnings (Basic) 151.0 187.3 45.0 48.0 48.6 61.8 73.4 90.3

Earnings Analysis

Adjustment for convertibles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Earnings (diluted) 151.0 187.3 45.0 48.0 48.6 61.8 73.4 90.3

Add-back of amortisation of intangibles 0.0 0.0 0.0 4.4 4.6 4.7 4.7 4.7

Dil. earnings before amort. of intangibles

151.0 187.3 45.0 52.4 53.3 66.6 78.1 95.1

Exceptional Items

Other exceptional item 4.9

Total Exceptionals pre tax 0.0 0.0 -75.1 4.9 0.0 0.0 0.0 0.0

Tax on exceptionals 0.0 0.0 -9.3 0.0 0.0 0.0 0.0 0.0

Minority share of exceptionals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Exceptional net of tax & minorities 0.0 0.0 -84.4 4.9 0.0 0.0 0.0 0.0

Diluted earnings before amort. & except.

151.0 187.3 129.4 47.5 53.3 66.6 78.1 95.1

No. of shares (basic) (m) 168.1 169.6 168.2 166.1 166.4 166.6 166.6 166.6

Conversion of Options 3.9 3.1 1.9 2.3 3.8 3.2 3.2 3.2

Convertibles/Exchangeables 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

No. Shares Diluted 172.1 172.7 170.1 168.5 170.2 169.8 169.8 169.8

Per share data (c)

Basic EPS 89.8 110.5 26.7 28.9 29.2 37.1 44.0 54.2

Diluted EPS 87.8 108.5 26.4 28.5 28.6 36.4 43.2 53.2

Diluted EPS before gw 87.8 108.5 26.4 31.1 31.3 39.2 46.0 56.0

Diluted EPS before gw & exceptionals 87.8 108.5 76.0 28.2 31.3 39.2 46.0 56.0

Cashflow per share 112.1 136.0 99.9 49.4 52.2 61.5 69.5 79.5

Dividend 19.0 25.0 8.0 0.0 10.0 12.0 14.4 17.3

NBV 325.1 397.8 305.8 341.7 389.4 428.7 459.6 497.0

NBV (incl. amortisation of intangibles) 344.3 416.9 327.6 365.9 416.4 458.5 492.2 532.3

Movements on P&L & Reserves (€m)

Profit attributable 151.0 187.3 45.0 48.0 48.6 61.8 73.4 90.3

Dividends 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Currency translation effects 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Movement 151.0 187.3 45.0 48.0 48.6 61.8 73.4 90.3


22 Davy Research

Financial summary Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Cash Flow (€m)

EBITDA 236.0 284.2 202.3 102.9 107.6 133.6 148.3 166.5

Change in working capital -38.1 -56.1 52.5 105.2 -44.7 -14.6 -15.0 -20.0

Share-based payments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other operating cashflows -1.0 -1.1 -11.1 -2.9 -3.2 -2.8 -2.8 -2.8

Cash generated from operations 196.9 227.0 243.7 205.1 59.7 116.2 130.5 143.8

Net capital expenditure -57.7 -137.6 -97.6 -45.7 -16.0 -23.6 -28.6 -33.6

Operating cashflow 139.3 89.5 146.1 159.4 43.7 92.6 101.9 110.2

Dividends from associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net interest -8.4 -12.3 -12.7 -12.9 -9.6 -11.1 -11.8 -9.2

Tax -25.5 -27.0 -18.1 -10.1 -2.2 -9.8 -17.4 -21.4

Dividends to minorities 0.0 0.0 0.0 -0.3 -0.2 -0.1 -0.1 -0.1

Free cash flow 105.3 50.1 115.3 136.0 31.8 71.7 72.6 79.5

Dividends to shareholders -25.1 -35.5 -42.3 N/A -6.7 -17.3 -20.8 -24.1

Acquisitions & investments -107.3 -48.5 -87.2 0.0 -1.2 -109.4 0.0 0.0

Business disposals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Share Issues / (Buybacks) 3.3 4.6 -29.9 0.3 0.5 0.3 0.0 0.0

Translation differences -0.7 -4.1 -10.0 1.8 2.5 0.9 0.0 0.0

Other 0.4 -4.0 -20.6 -2.8 16.4 4.5 6.5 6.5

Change in net cash / debt -24.0 -37.4 -74.7 135.3 43.5 -49.3 58.3 61.9

Summary Balance Sheet (€m)

Property, plant & equipment 294.9 398.7 411.1 400.0 408.6 443.2 427.2 413.4

Intangible assets 304.7 318.1 292.9 310.3 324.7 382.5 377.7 373.0

Investments in associates / jv's 2.9 2.6 1.4 22.0 1.7 0.4 0.4 0.4

Working capital 229.7 285.4 222.3 123.3 162.7 189.4 204.4 224.4

Other N/A N/A N/A N/A N/A N/A N/A N/A

Capital Employed 832.2 1004.9 927.7 855.5 897.7 1015.5 1009.7 1011.2

Financed by

Equity capital & reserves 546.8 672.9 517.3 580.8 662.0 728.8 781.4 844.8

Minority / preference interests N/A N/A 1.8 4.7 4.9 6.1 6.1 6.1

Net Debt/(Cash) 187.6 225.0 299.6 164.3 120.8 170.1 111.8 49.9

Deferred consideration/debt-related N/A N/A N/A N/A N/A N/A N/A N/A

Retirement benefit obligations 21.0 6.5 3.7 3.7 1.6 1.4 1.4 1.4

Net deferred tax 8.2 12.9 48.8 43.0 51.9 52.5 52.5 52.5

Other long-term liabilities 68.7 87.5 56.5 59.1 56.4 56.6 56.6 56.5

Capital Employed 832.2 1004.9 927.7 855.5 897.7 1015.5 1009.7 1011.2

Goodwill Adjustments

Intangibles amortised 32.2 32.2 36.8 41.2 45.8 50.6 55.3 60.1

Shareholder funds inc. intangibles 579.0 705.1 554.1 622.1 707.8 779.4 836.7 904.9

Capital employed inc. intangibles 864.4 1037.1 964.5 896.7 943.5 1066.1 1065.0 1071.2

Invested capital inc. intangibles 766.6 930.1 855.5 791.0 833.6 955.6 954.6 960.9

Analysis of Debt (€m)

Loans 187.6 225.0 299.6 164.3 120.8 170.1 111.8 49.9

Cash Balances N/A N/A N/A N/A N/A N/A N/A N/A

Net Debt/(Cash) 187.6 225.0 299.6 164.3 120.8 170.1 111.8 49.9

Fixed Rate Debt N/A N/A N/A N/A N/A N/A N/A N/A

Working Capital (€m)

Inventories 130.9 152.1 159.1 110.8 129.0 160.7 175.7 195.7

Accounts Receivable 358.0 386.7 299.2 203.5 236.3 281.8 281.8 281.8

Accounts Payable -259.1 -253.5 -236.0 -191.1 -202.7 -253.1 -253.1 -253.1

Total 229.7 285.4 222.3 123.3 162.7 189.4 204.4 224.4


23 Davy Research

Financial analysis Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Group Margin Analysis

G/W Amort./Sales (%) N/A N/A 0.3 0.4 0.4 0.3 0.3 0.3

Operating Margin (pre G/W) (%) 13.3 12.7 9.7 6.0 6.0 6.2 6.8 7.5

Depreciation/Sales (%) 2.9 2.6 2.4 3.2 3.0 2.5 2.5 2.3

EBITDA margin (%) 16.2 15.3 12.1 9.1 9.0 8.6 9.3 9.8

Net Capex/Sales (%) -3.9 -7.4 -5.8 -4.1 -1.3 -1.5 -1.8 -2.0

Change in Working Cap./Sales (%) -2.6 -3.0 3.1 9.3 -3.7 -0.9 -0.9 -1.2

Other Op. Cash Flows/Sales (%) -0.1 -0.1 -0.7 -0.3 -0.3 -0.2 -0.2 -0.2

Operating Cash Flow Margin (%) 9.5 4.8 8.7 14.2 3.7 6.0 6.4 6.5

Activity

Revenue / Capital Employed (x) 1.89 1.97 1.67 1.22 1.31 1.54 1.50 1.59

Sales/Avg. Fixed Assets (x) 5.4 5.4 4.1 2.8 3.0 3.6 3.7 4.0

Return

ROCE (before tax, ex. invs) (%) 25.1 25.0 16.2 7.3 7.9 9.5 10.2 11.9

ROE (after tax) (%) 29.4 29.2 20.5 8.1 8.0 9.0 9.7 10.9

Ret. on Inv. Cap. (after tax) (%) 23.1 23.3 16.3 7.0 7.9 8.8 9.3 10.8

WACC (%) 7.3 7.4 7.2 8.4 9.0 8.5 8.1 7.8

Cost of Equity (%) 7.5 7.8 9.3 9.6 8.7 8.6 7.8 7.8

Avg. Cost of Debt (after tax) (%) 4.1 5.0 4.8 2.2 7.3 7.4 6.9 9.3

Growth

Revenue (%) 17.5 27.5 -10.2 -32.7 6.0 29.6 3.2 6.4

EBITDA (%) 32.9 20.4 -28.8 -49.2 4.6 24.1 11.0 12.3

EPS Diluted (Adj) (%) 35.5 23.6 -29.9 -62.9 11.1 25.3 17.3 21.7

Cash EPS (Diluted) (%) 34.0 21.3 -26.6 -50.5 5.7 17.8 12.9 14.4

Dividend (%) 41.8 31.6 -68.0 N/A N/A 20.0 20.0 20.1

NBV (%) 30.9 22.4 -23.1 11.7 14.0 10.1 7.2 8.1

Working Capital Ratios

Working Capital / Revenue (%) 15.7 15.3 13.3 11.0 13.6 12.2 12.8 13.2

Days Inventory Held 48 43 50 41 N/A N/A N/A N/A

Days Sales Outstanding 89 76 65 66 72 66 64 61

Cash Conversion Ratios

Operating Cashflow/EBITDA (%) 59.0 31.5 72.2 155.0 40.6 69.3 68.7 66.2

Free Cashflow (pre divs)/Earnings (%) 69.7 26.8 -292.9 237.6 59.7 107.7 93.0 83.6

Financial / General

EBITDA Int. Cover (x) 26.7 22.8 14.5 17.2 9.2 10.2 12.6 18.1

Group Interest Cover (x) 21.9 19.0 11.3 10.5 5.7 6.9 8.8 13.2

Debt / EBITDA (x) 0.8 0.8 1.5 1.6 1.1 1.3 0.8 0.3

Debt / Equity (%) 34.3 33.4 57.7 28.1 18.1 23.1 14.2 5.9

Debt / Mkt cap (%) 5.6 12.9 56.8 16.1 9.5 15.7 8.1 3.6

Debt / Free Cash Flow (x) 1.8 4.5 2.6 1.2 3.8 2.4 1.5 0.6

Avg. Cost of Debt (before tax) (%) 5.0 6.0 5.3 2.6 8.2 9.0 8.4 11.4

Fixed rate Debt/ Net Debt (%) N/A N/A N/A N/A N/A N/A N/A N/A

Ret. benefits deficit / market cap (%) 0.6 0.4 0.7 0.4 0.1 0.1 0.1 0.1

Ret. benefits assets / liabilities (%) 74.5 90.4 N/A N/A N/A N/A N/A N/A

Dividend Cover (x) 4.6 4.3 9.5 N/A 3.1 3.3 3.2 3.2

Gross Capex/Depreciation (x) 1.4 2.9 2.4 1.3 0.4 0.6 0.7 0.8

Depreciation / Avg. Fixed Assets (%) 15.4 13.7 10.0 8.8 8.8 8.9 9.2 9.5

Reported Tax Rate (%) 18.1 16.4 35.4 15.4 11.9 19.2 19.0 19.0

Tax Rate before Ex & GW (%) 18.1 16.4 10.0 14.3 10.9 18.1 18.1 18.2


24 Davy Research

Valuation Summary Dec06 Dec07 Dec08 Dec09 Dec10 Dec11P Dec12F Dec13F

Share Data (c)

Year High 2010 2256 1103 700 749 770

Year Low 1085 1017 268 202 500 565

Average Price 1408 1829 684 452 620 655 813 813

Year End Price 2007 1035 312 600 749 636 813 813

Year End No. Shares (m) 168.2 169.2 169.2 170.0 170.0 170.0 170.0 170.0

Year End Market Cap 3375.2 1750.7 527.7 1020.0 1273.3 1081.2 1382.1 1382.1

Capital Structure (€m)

Average Market Cap 2386.4 3124.2 1157.5 750.5 1030.7 1091.3 1357.7 1357.7

Net Debt/(Cash) 187.6 225.0 299.6 164.3 120.8 170.1 111.8 49.9

Deferred Consideration 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Equity Minorities 0.0 0.0 1.8 4.7 4.9 6.1 6.1 6.1

Non-equity Minorities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Enterprise Value 2573.9 3349.2 1459.0 919.5 1156.5 1267.5 1475.6 1413.8

Investments 2.9 2.6 1.4 22.0 1.7 0.4 0.4 0.4

E. V. (excl. invs.) 2571.0 3346.5 1457.5 897.5 1154.8 1267.1 1475.2 1413.4

Key Operating Data

Group Turnover 1461.2 1863.2 1672.7 1125.5 1193.2 1546.9 1596.5 1699.4

EBITDA 236.0 284.2 202.3 102.9 107.6 133.6 148.3 166.5

EBITA 194.0 236.7 161.7 67.1 72.0 95.7 108.4 126.6

Diluted EPS before gw & exceptionals 87.8 108.5 76.0 28.2 31.3 39.2 46.0 56.0

Dividend 19.0 25.0 8.0 0.0 10.0 12.0 14.4 17.3

NBV 325.1 397.8 305.8 341.7 389.4 428.7 459.6 497.0

Equity Valuation

Average P/E (pre gw & exc.) 16.0 16.9 9.0 16.1 19.8 16.7 17.7 14.5

Average Price / Cash EPS 12.6 13.4 6.8 9.1 11.9 10.6 11.7 10.2

Average Dividend Yield 1.3 1.4 1.2 N/A 1.6 1.8 1.8 2.1

Average Free Cash Flow Yld (pre divs) (%) 5.5 2.7 13.6 18.1 3.7 8.2 6.9 7.6

Price/Book 6.2 2.6 1.0 1.8 1.9 1.5 1.8 1.6

Price/book (incl. gw) 5.8 2.5 1.0 1.6 1.8 1.4 1.7 1.5

Average EV Multiples

Sales 1.8 1.8 0.9 0.8 1.0 0.8 0.9 0.8

EBITDA (EV excl. Investments) 10.9 11.8 7.2 8.7 10.7 9.5 9.9 8.5

EBITA 13.3 14.2 9.0 13.7 16.1 13.3 13.6 11.2

Operating Cash Flow 18.5 37.4 10.0 5.8 26.5 13.7 14.5 12.8

Invested Capital (Y/E) 3.3 3.5 1.7 1.2 1.4 1.3 1.6 1.6


25 Davy Research

Sector Valuations Price Mkt. Cap % Change

Company (c) (€m) Wk 1 Mth YTD

Building Components

Kingspan Group (KSP ID) 813 1358 5.6 13.8 27.8

Geberit (GEBN VX) 19520 6454 -0.3 2.5 8.7

Rockwool (ROCKA DC) 56200 1663 -1.9 3.4 21.8

SIG plc (SHI LN) 115 803 2.1 13.3 35.3

Wavin NV (WAVIN NA) 1043 530 0.2 13.9 9.8

Building components 1674 10807 0.3 5.3 14.4

P/E Ratios Div EV/EBITDA Price/

Company 2011 2012 2013 Yield 2011 2012 2013 Book

Building Components

Kingspan Group (KSP ID) 20.7 17.7 14.5 1.5 11.7 9.9 8.5 1.9

Geberit (GEBN VX) 19.5 18.1 16.6 3.2 13.5 12.3 11.2 5.2

Rockwool (ROCKA DC) 19.8 16.7 13.9 1.7 6.7 5.7 5.1 1.4

SIG plc (SHI LN) 12.1 11.5 10.0 1.7 6.2 5.9 5.0 0.9

Wavin NV (WAVIN NA) 43.5 25.9 16.8 N/A 7.6 7.4 6.4 0.9

Building components 19.4 17.5 15.2 10.1 9.2 8.2 2.3

26 Davy Research

Important disclosures

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Distribution of ratings/investment banking relationships Investment banking services/Past 12 months

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Neutral 28 30 6 16

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Suspended 0 0 0 0

Restricted 1 1 1 2

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27 Davy Research

Share ownership policy Davy allows analysts to own shares in companies they issue recommendations on, subject to strict compliance with our internal rules governing own-account trading by staff members. We would like to advise you that: Barry Dixon holds shares in Kingspan Group. We are satisfied that our internal policy on share ownership does not compromise the objectivity of analysts in issuing recommendations.

Conflicts of interest Our conflicts of interest management policy is available at www.davy.ie/ConflictsOfInterest. The remuneration of the analyst(s) who prepared this report is based on various factors including company profitability, which may be affected to some extent by revenues derived from investment banking. Davy is a registered market-maker in the securities of Kingspan Group on the Irish Stock Exchange. Davy is a registered market-maker in the securities of Kingspan Group on the London Stock Exchange.

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[email protected] / +353 1 6149004 Both cyclical and structural; 2011 … · 2018. 1. 24. · March 1, 2012 Equity Report: FY results Kingspan Group Price: 813c Both cyclical

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