Focus on 2014 guidance, but share fully valued

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1 ROCKWOOL - REDUCE Focus on 214 guidance, but share fully valued This is a noncomplex product We reiterate our Reduce recommendation ahead of the Q4 report as we believe the share is fully valued. With the headwind from FX we expect 214 guidance to be conservative. Rockwool will release its Q4 13 results on 21 February after the market close. We see some upside to consensus Q4 13 estimates, but reiterate our Reduce recommendation ahead of the Q4 report as we see valuation as stretched with a DCF fair value of DKK 1,, leaving little support to the current share price. Based on our 214 estimates the share trades at a P/E of 23x and an EV/EBITDA of 9.8x a premium of 2% to other building equipment peers. Fundamental valuation Overvalued Risk Average News flow Neutral 12-month target price 97 Closing price 172 Shar e infor m ation High/low latest 12 m 172/677 Price trend (3/12 m) 21%/54% Relative to OMXC2 7%/22% Market value (DKKm) Free float 64% Avg daily vol (DKKm) 15,5 Reuters ROCKb.CO Bloomberg ROCKB DC We expect revenue in Q4 13 to increase by 8.5%, partly due to the positive impact from the acquisition of CMC, adding DKK 19m or 4.8% to revenue in Q4 13. Organic growth is likely to show a sequential improvement over Q3 13 with estimated organic growth of 4% but revenue will be impacted by a negative currency effect of -1.8%. Regionally we expect continued high organic growth in North America while growth in China has levelled off due to political uncertainty over fire safety legislation, leading to delay in new projects. In Western Europe we Accounting figures and key figures (DKKm) 212R 213E 214E 215E Sales Operating profit Results before taxes EBIT margin 7,8% 8,9% 9,% 9,5% ROE 8,6% 9,3% 9,6% 1,2% ROIC 8,5% 9,4% 9,8% 1,6% EPS 35,77 41,69 46,66 53,43 P/E 24,7 21,2 19, 16,6 EV/EBIT 17,1 15,1 13,9 12,4 P/BV 2, 1,9 1,8 1,6 Dividend 11, 11, 13, 13, Pr ice tr end 1124 Rockwool B OMXC2 Cap f m a m j j a s o n d j f Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-86 Silkeborg Senior Analyst, Equity Research, Janne Vincent Kjær jvk@jyskebank.dk This investment research report is an extract of a research report to professional investors. Important investor information: Please see 1

2 expect to see an improvement in trading conditions, but expect growth to remain at a low level despite continued good activity in Germany and France. However, early signs of improvement have been seen in Spain and Italy which should improve sales momentum sequentially. We believe the markets have bottomed out, but do not expect a significant recovery at this point in time. We expect Rockwool to report operating profit of DKK 41m, corresponding to an EBIT margin of 9.7% - down.1 p.p. compared to last year adjusting for write-downs. We see some upside to consensus estimates, but expect a rather deep margin decline from Q3 13, partly due to the integration of CMC and a negative currency effect that is estimated to have an impact of.2 p.p. on the margin. Overall input prices are expected around last year s level, however, with some suppliers starting to push for higher prices on foundry coke. Consensus JB Chg % Consensus JB (mdkk) Q4 '12R Q4 '13E 213E Consensus JB 213E 214E 215E 213E 214E 215E Revenue ,9% 7,2% EBITDA ,4% 13,4% Operating profit (EBIT) ,9% 25,9% Net result ,5% 19,7% EBIT-margin 8,3% 9,1% 9,7%,9 p.p. 1,4 p.p. 8,5% 8,8% 9,4% 8,7% 8,8% 9,3% Kilde: Jyske Bank, Rockwool & Inquiry 214 guidance is likely to be conservative. We expect management to guide towards revenue growth of more than 7% positively impacted by acquisitions that are expected to add DKK 1.2bn to revenue or approximately 7%. Net profit is expected around DKK 1,m, but with management likely to guide towards net profit of DKK 95m. 2

3 Overview Rockwool International Company profile Rockwool International is the world's largest producer of stone wool. The products are primarily used for insulation - while some products are used for ceilings, façade panels, cultivation substrate for nurseries and vegetable growers, reinforcement fibres in brake linings, gaskets, and plastics and outdoor protection against noise and vibrations. Moreover, our BuildDesk gives customers advice about comprehensive solutions within insulation. Rockwool has 22 factories all over the world. Sales growth and profitability 2% 15% 1% 5% % -5% -1% -15% -2% -25% Sales growth EBITAA-margin Ownership structure Øvrige 6% Break-down of sales Systems 18% Gustav Kähler 7% Rockwool Fonden 23% 15. juni Fonden 1% Insulation 82% Fundamental valuation After a significant growth period in 24-27, Rockwool has since 28 been hit by the slowdown in construction. Rockwool has cut its costs but still needs to benefit from this through higher sales. Investment case Rockwool is highly dependent on construction particularly in Europe, where there is a risk of slowdown in growth despite continuing strong insulation markets in Germany and France. Due to continuing great uncertainty about the macroeconomic situation and Rockwool s announcement about deterioration in market conditions in a number of Western European countries, we believe that it is too early to buy the share. Rockwool is, however, benefiting from the fact that demand for insulation is late in the construction phase, which will contribute to protect demand in the European part of the business in 212. Market conditions are expected to deteriorate going into 213. The share is overvalued, in relative terms and fundamentally, and, thus, we do not find the share attractive. Price triggers An upgrade of the current housing stock in Central and Eastern Europe. New EU directives making increasingly tough demands on the energy performance of buildings. Fulfilment of the requirements of the Kyoto Protocol - which will lead to increasing demand for insulation. An increase in housing starts in Continuing high energy prices. Risk factors Declining exchange rates in Central and Eastern Europe. Excess capacity as Rockwool and its competitors establish new factories. Price pressure due to excess capacity. A long-lasting economic slowdown in Europe. Competitors announce product innovations in the areas of foam plastic and glass wool that will harm Rockwool's competitiveness. Falling oil prices. Total return 28-74,7% ,9% 21 19,6% ,5% ,5% 213,% 213 YTD 42,5% 3

4 Date Recommendation Reduce Price at recommendation 637, 172, Yield until next change of recommendation or today 68,29% Index at recommendation 453,39 739,91 Yield until next change of recommendation or today 63,2% Relative performance compared to index 1,7% The tabled prices are the opening price of the day of the recommendation change. Index: OMXC2 4

5 Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) Strong Buy Buy Reduce Sell Strong Buy Buy Reduce Sell Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. 5

6 Recommendation Strong buy >2% Buy 1-2% Reduce -1% Sell <% Source: Jyske Bank Share recommendation concepts Risk-adjusted return Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 1% (the US equity market, for instance, yielded a return of 1% during the period ). When we determine the recommendation for a share we use the 1% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs and tax-related circumstances since returns after costs and tax-related circumstances depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Investeringscenter Nord Toldbod Plads 1 9 Aalborg Tlf: Investeringscenter Midtvest St. Torv 1 75 Holstebro Tlf: Investeringscenter Sydvest Torvet Esbjerg Tlf: Investeringscenter Østjylland Østergade 4 8 Århus C Tlf: Investeringscenter København Vesterbrogade København V Tlf: Investeringscenter Sjælland Nørregade 6 41 Ringsted Tlf: Investeringscenter Fyn Mageløs 8 51 Odense C Tlf: Investeringscenter Silkeborg Vestergade Silkeborg Tlf: Investeringscenter Trekantsområdet Hjulmagervej 8 F 71 Vejle Tlf: Jyske Bank (Schweiz) AG Tlf: Berben s Effectenkantoor B.V. Tlf: +31 () PBC Hamburg Tlf: Jyske Bank (France) Tlf : Jyske Bank (Gibraltar) Ltd Private Banking Copenhagen (PBC) Tlf: