Analysts remain "excited" about building materials manufacturer Kingspan's potential and its ability to execute on it, Davy has said in a note to investors.
In recent weeks, the Co Cavan-based multinational reported profit growth of 64 per cent to €329 million in the first six months of the year.
"Kingspan continues to marry near-term delivery with a sharp focus on the longer-term opportunity," said Davy on Tuesday. "Both combine to justify the group's valuation, and we remain excited about Kingspan's potential as well as the ability to execute on it.
“Yet another chunky earnings upgrade sustains earnings momentum, while the megatrends and tailwinds that represent the structural opportunity are, if anything, only amplifying.”
Kingspan makes and sells insulation and building materials in 129 factories in 70 countries in Europe, the Americas, Asia and Australia and other regions.
Davy said its updated trading profit forecast for the company in 2021 was €690 million, which is consistent with management comments following the group’s “outstanding interim results”.
It represents an upgrade of 8 per cent (€49 million) and brings to about €160 million the cumulative change in Davy’s 2021 trading profit forecast since the start of the year.
“Even by Kingspan standards, this 30 per cent revision – which indicates earnings growth for the year is now likely to be in the region of 35 per cent – is exceptional,” Davy said.
‘Abnormally buoyant’
Kingspan has tagged 2021 as an “abnormally buoyant year” due to a number of unusual variables, such as severe input cost inflation. “This informs our revised estimates for next year,” said Davy.
“While our updated trading profit estimate of €700 million as such suggests little change on the projected current year result, it nonetheless is a further 2 per cent upgrade, and the 2022 forecast now is 19 per cent higher than the start-of-year position.
“It almost goes without saying that forecast risk is to the upside given Kingspan’s history.”
Davy said the Kingspan rating represents “a notional headwind” to the investment thesis but added this was “not untypical”.
“More relevant in our view is the potent combination of consistent operational delivery and earnings progress, free cash flow production and financial strength and a structural, multi-year, secular growth opportunity that looks to be expanding,” it said.
“We believe the latter is the distinguishing and defining characteristic of Kingspan and underscores our confidence that the group will continue to outshine the sector.”
