Kingspan on the acquisition trail as first-half profits rise

Insulation specialist Kingspan is eyeing further acquisitions that could include deals in Latin America or the expansion of a recently launched division of its business.

Shares in Cavan-based Kingspan soared almost 10 per cent to €31.409 late on Friday after it reported that pretax profits rose 5.5 per cent to €163.3 million in the first six months of the year.

Chief executive Gene Murtagh indicated that it may follow its purchase of a 51 per cent stake in Colombia's Panelmet and a manufacturing venture in Mexico with other acquisitions in Latin America.

Kingspan could also add to a new division – light and air – that makes skylights and ventilation systems, which it believes could grow turnover to €500 million over the next five years from €81.7 million in the first six months of 2017.

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"I would say that they are both key areas for us, but they would not be the largest in absolute terms," Mr Murtagh said. "We have a much wider agenda in Europe and North America, and that is insulation panels and boards."

‘Unreasonable sellers’

He confirmed that the group is always looking at buying specific companies but added that “unreasonable” sellers were holding up potential deals.

“Their expectations are elevated, we are seeing the same valuation inflation in private markets as in public markets,” he said. Mr Murtagh added that this was a direct effect of low borrowing charges.

He acknowledged that demand and other issues have pushed up the cost of steel and chemicals that Kingspan uses in the manufacture of its products high.

In particular, the group has seen recent rises in the cost of a chemical component, methyl diphenyl diisocyanate (MDI), used in its products.

“There’s been more global demand than might have been anticipated and there’s been other issues as well such as plant shut downs,” he said.

Kingspan is passing the cost on to customers, but its chief executive explained that there is a two- to three-month time lag in recovering the extra expense.

As a consequence, trading margin shrank in the first half of the year to 10.2 per cent from 11.4 per cent during the same period in 2016.

Interim dividend

Kingspan’s sales grew 19 per cent in the six months ended June 30th to €1.75 billion from €1.47 billion during the same period last year.

Profit before tax increased 5.5 per cent in the first half to €163.3 million in the first half from €154.8 million during the first six months of 2016.

Basic earnings per share expanded at 5 per cent to 74.4 cent from 70.6 cent. Kingspan is proposing to pay an interim dividend of 11 cent, 10 per cent more than the 10 cent per share it paid for the first half of last year.

Mr Murtagh said that the group is comfortable with the market view that full-year trading profit will be in the region of €375 million.

Trading profit in Kingspan’s key insulated panels business grew 4 per cent to €117 million. It was unchanged in the insulation boards division at €40 million.