Kingspan investors look beyond record profit forecast

Markets move in mysterious ways. Kingspan said on Monday it expected to post its highest ever annual profit in 2023, yet its shares fell the most in seven months. Why?

In short, traders don’t always look at profit and loss. Sentiment toward a particular stock is driven as much by expectations as much as how the company is doing day to day.

For Kingspan, a 7 per cent drop in like-for-like sales between July and September, which was a bigger decline than had been expected, appears to have been the main driver of the sell off in the stock yesterday. Kingspan shares fell 5.2 per cent on the day, to post its biggest one day decline since April 7th.

Kingspan is facing two issues in its insulated panels division, which accounted for about 62 per cent of its sales globally last year. First, key markets slowing down in line with the steam coming out of the global economy. In its update, the firm highlighted that the UK market has weakened considerably since mid-year with central and eastern Europe stable at sluggish levels of activity.

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Second, the fact that volumes were flat even as revenue fell indicates “clear price deflation” in the low teens according to analysts at Goldman Sachs including Pierre de Fraguier.

Cavan-based Kingspan has had a particularly good run of it of late. Its shares are up around 29 per cent for the year so far so a one-day decline is hardly a disaster. Indeed, analysts appeared generally relaxed about the company’s performance. The reality is the business is throwing off cash and has a manageable debt load.

Perhaps the most intriguing issue around Gene Murtagh’s business for now concerns its deals. Chief financial officer Geoff Doherty told analysts the company expects to close its acquisition of a majority stake in German firm Steico early next year. Separately, the acceptance period for Nordic Waterproofing investors mulling Kingspan’s bid expires on or about February 1. While the company is no longer in talks with American firm Carlisle Companies on a merger, clearly the possibility of a major, transformative deal remains. Definitely one for investors to watch.