Kingspan Group
T r i n i t y S M F Kingspan Group Plc. Sector Manager: Daniel Curran Senior Analyst: Kevin McDonnell Team Analysts: Jack Kennedy Ashley Duane Dylan Murphy TJ O Sullivan Mark Perham
Investment Thesis
Summary of Investment Thesis Why invest now? The market cycle is slowly beginning to gain traction. Investing later in the year could minimise future gains. Why invest in this industry? We believe that Kingspan are in a strong industry that is poised for growth after a significant period of decline. Long Tem Outlook Buy Strong Industry, Leadership & Brand Why invest in Kingspan? Kingspan in particular is positioned for sustainable growth. It has a strong management team, and a strong balance sheet which will allow them to make incremental gains in the coming years. How does this fit into the SMF s Portfolio? The 3-4 year investment horizon will allow complete market recovery, and give Kingspan time to expand their business into key regions. Conviction Now
Company Overview
Introduction: Company Snapshot Recommendation BUY Current Price 25.00 Price Target 26.4 Upside 5% Timeline 4+ years Market Cap. 4420.9 M 52wk range 12.845-25.25 P/E 31.3 Div. Yield 0.72% FCF Yield 5.13% Analyst Consensus Buy or Hold
Revenue Breakdown Access Floors 8% Environmental 8% Insulated Panels 59% Insulated Boards 25%
Revenue The graph shows that revenue has almost doubled in the 5 years since 2009. With the completion of recent acquisitions we believe that this trend is set to continue.
T r i n i t y S M F Geographical Breakdown Ireland 4% UK 36% North America 15% Mainland Europe 35% Rest of World 4% Moving forward North America and mainland Europe will be the major growth areas for Kingspan. In the 2016 / 2017 calendar year they will also increase their exposure to the Mexican market.
Sales to Profit Breakdown
Company SWOT Analysis Strengths Extremely innovative, especially for an industrials company. Large steady investments in R+D. Nimble, despite it s growing size. Company-wide commitment to long-term plan of diversification and supporting environmental endeavours. Strong debt management unwilling to go above 2x Net Debt/EBITDA Weaknesses Opportunities The global green building materials market size is expected to exceed USD 364 billion by 2022. Accenture predict that the construction industries in developed countries will grow 36% between now and 2020 Increased regulations concerning green buildings on national and supranational levels. Threats Lack of exposure to developing markets. Losing market share to larger competitors
Mergers & Aquisitions European manufacturer and supplier of insulated panels Leading market positions in France and the Benelux. 329 million North American supplier of quality exterior building products Leading supplier to all segments of the construction industry across North America. 139 million
Competition Breakdown 25% of the market is controlled by four main companies. Share Price Market Cap P/E Industry Average - 3.7B 24.45 Kingspan 25.00 4.4B 31.3 San-Gobain 40.92 23.14B 29.529
Business Overview Lead the field in high performance insulation globally with proprietary and differentiating technologies. Achieve greater geographic balance, primarily focusing on The Americas, Western Europe and appropriate developing markets. Become the world s leading provider of low energy building solutions Insulate & Generate.
Management Founder Eugene Murtagh, Non-Executive Chairman Founded 1965, Aged 72. CEO Gene Murtagh, Previously COO, Appointed 2004, Age 40. CFO Geoff Doherty, Previously CFO of Green Core, Appointed 2011, Age 43. Raymod Trost, CEO Joris Ide, Appointed 2011, Age 56.
Environmental Focus Sustainability Commitment Awarded a position on the CDP Climate A List. Committed to net zero carbon emissions by 2020. Business Division Environmental Business Division is responsible for approximately 8% of Revenues. Following a relatively prolonged spell of either stagnant or declining sales, activity has now stabilised. Growing this business more internationally is considered important, with particular emphasis on environmental fuel storage solutions, water and treatment applications.
Financial Overview
Financials Kingspan impressed throughout a difficult period for the construction industry, and they are thriving again as economic prosperity slowly returns. Kingspan s Revenue, Net Income and EPS have increased every year for the last 5 years. Summary Total Revenue 1.891bn Gross Margin 27.3% EBITDA 187m ROE 13.2% Total Debt/Equity 1.11 Div. Yield 0.72%
Income Statement Revenue and ROCE show healthy trends, which look set to continue into the future. Return on Capital Empolyed Employed in % Revenue in Millions of Euro 2012 2012 2013 2013 2014 2014 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 1450 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950
Balance Sheet & Cash Flow Statement This year s financials look set to surpass what was an incredilbe 2014 for the Kingspan Group. Kingspan has sales totalling 2B in the first 9 months of 2015, up 44% year on year. This year trading profit is anticipated to be 250m, up 68% year on year. ( 000) 2013A 2014A 2015E 2016E Cash and Equivalents 196.6 185.7 170.6 180.5 Total Assets 1589.2 1836.5 2,629.5 2,800 Total Debt 106.7 125.5 639.4 654 Total Liabilities 859.6 827.4 1,425.4 1478 Shareholders Equity 859.6 1009.1 1204.1 1384.72 Cash Flow Operations 114.3 139.6 300 345
Key Ratios At the end of September 2015 the net debt sat at 413m. This figure is up 300m from this time last year, but it is forecast to drop to 380m by the year s end As previously mentioned, Net Debt/Ebitda will not rise above 2 times, due to strong liability management of the firm. Ratios 2010 2011 2012 2013 2014 Net debt 18.1% 23.1% 20.3% 12.4% 12.4% Current Ratio 1.55 1.63 1.65 1.83 1.47 Operating Cash flows 43.5 76.3 95.8 87.1 100.1 Net Assets 400.8 441.1 485.0 510.2 589.7
Debt Analysis Capital Structure Market Capitalisation Short Term Debt Long Term Debt Funding comes through a combination of equity and debt. Debt is funded through a combination of syndicated bank facilities, and private placement loan notes. Used for the purchase of acquisitions. 6% 8% 86%
Debt Analysis Net Debt/EBITDA Interest Coverage Ratio 2.5 12 2 10 8 1.5 6 1 4 0.5 2 0 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 0 2010 2011 2012 2013 2014
Valuation
Competitor Valuations Name P/E Fwd P/E EPS Gr. 2015 EPS Gr. 2016 Div Yield Div. Cover ROE EBITDA (mil.) Mkt. Cap YTD. Perf Saint- Gobain 29.529 17.8 1.01% (12.3)% 1.5% 1.38 4.5% 3,720 23.0B 14.18% Rockwool 31.23 22.5 1.01% 0.08% 1.05% 9.4 6.9% 314 11.6B 55.28% Recticel 10.75 10.3 3% 0.07% 3.89% 1.8 0.1% 46 180.6M 20.00% Kingspan 31.1 21.5 20.91% 12.5% 0.72% 3.58 13.2% 236 4.4B 75.61%
Implied Multiples Valuation Metric Median Industry Value Implied Price P/E 24 18.1 FWD P/E 17 19.64 P/B 2 3.3 Average Price 18.94 EV/EBITDA Model EBITDA: 30,782.9 Low Base High EV/EBITDA 18.9 22.3 23.7 EV 4450.8 5263.7 5590.3 + Cash 235.9 - Debt 413.8 Value of Equity 4047.2 4860 5186.7 No. Shares 176.6 Per Share Value ( ) 22.89 27.49 29.33 Potential Upside (8%) 10% 17%
Discounted Cash Flow Valuation 2015E 2016E 2017E 2018E 2019E Growth Rate EBIT 236 276.12 317.54 361.99 409.05 13-17% Dep & Amor 57.3 61.9 64.4 65.6 66.9 2-8% Def. Taxes 7 7 6 6 5 n/a Changes WC 26 13 4 0 0 n/a Capital Exp. 63.7 69.43 74.29 77.27 80.36 4 9% Taxes 47.2 55.2 63.5 72.4 81.8 n/a Total FCF 215.4 210.6 207 208.8 211.6 n/a Discounted Cash Flow Valuation Terminal Growth 3% Total Enterprise Value 5263.7 WACC 10.8% Total Equity Value 4860.1 Estimated Value per share 27.48 (+10%)
Valuation Weightings Multiples 10% 26.40 (+5%) Low 20% High 35% Base 35%
Risk
Qualitative Risk 1. Volatility in Macro Environment: Demand for products is dependent of construction sector which is inherently cyclical. Failure to adapt to this risk could negatively impact financial results for Kingspan. 2. Failure to Innovate: Existing products could be replaced by substitute products that Kingspan doesn t produce, thus their market position could come under pressure. 3. Credit Risks: Kingspan provides credit to it s customers as a part of its services, and there are are associated risks with this. 4. Currency Exposure: Kingspan operates in three main regions, North America, Mainland Europe, and the UK. As such it has exposure to three major currencies. Although, the current currency situation favors Kingspan it may not remain as such.
Quantitative Risk
Quantitative Risk
Summary of Investment Thesis Why invest now? The market cycle is slowly beginning to gain traction. Investing later in the year could minimise future gains. Why invest in this industry? We believe that Kingspan are in a strong industry that is poised for growth after a significant period of decline. Long Tem Outlook Buy Strong Industry, Leadership & Brand Why invest in Kingspan? Kingspan is positioned for sustainable growth. It has a strong management team, and a strong balance sheet which will allow them to make incremental gains in the coming years. Conviction Now How does this fit into the SMF s Portfolio? The 3-4 year investment horizon will allow complete market recovery, and give Kingspan time to expand their business into key regions.
Questions