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Kingspan deals with rising input inflation

The insulation specialist has driven margins up despite cost-push inflation
August 20, 2021
  • Backlog for insulated panel products significantly ahead of H1 2020
  • Further input cost pressure through the remainder of 2021

Earlier this year, Kingspan (KGP) initiated a review of its operations in response to the Grenfell Inquiry. We can expect more details from phase two of the inquiry later this year, but there was scant mention in the insulation specialist’s half-year figures.

Instead, shareholders were given news of a 64 per cent rise in trading profits to €329m (£281m), coupled with a 160-basis point increase in the underlying margin.

The group, nominally based in Ulster, has extensive global reach, serving the market for insulation and building materials across the globe. Management said that Kingspan had experienced "unprecedented demand” through the period under review, though it has had to contend with price inflation for key input costs. These price pressures have yet to dissipate, with further potential raw material constraints expected through the remainder of the year.

The group estimates that a whopping €600m in cost increases will need to be recovered (i.e. passed on to customers) through 2021. The increase in the trading margin, though partly linked to scale benefits, suggests that Kingspan’s price management activities are having the desired effect.

The order backlog for its insulated panel products – its largest segment - is significantly ahead of the same point in 2020, as the construction industry takes ever-greater account of energy efficiency. And management foresees future growth through “increasing exposure to high growth end-markets including online retail, data warehousing and electric vehicle production”.

Kingspan had no hand in the design or planning of the cladding at Grenfell Tower, but the inquiry did uncover some operational shortcomings, which are being addressed. The tragedy certainly cast a pall over the group, though the interim figures show that trading hasn’t been unduly affected, with initial existential fears proving largely unfounded. Moreover, a forward consensus rating of 35 times forecast earnings stands as at vote of confidence. Hold.   

Last IC view: Sell, 6,065ȼ, 18 Feb 2021

KINGSPAN (KGP)   
ORD PRICE:9,592ȼMARKET VALUE:€ 17.4bn
TOUCH:9,591-9,593ȼ12-MONTH HIGH:9,830ȼLOW: 5,145ȼ
DIVIDEND YIELD:0.4%PE RATIO:37
NET ASSET VALUE:1,420ȼNET DEBT:29%
Half-year to 30 JunTurnover (€bn)Pre-tax profit (€m)Earnings per share (ȼ)Dividend per share (ȼ)
20202.0717879.8nil
20212.9229713219.9
% change+41+67+66-
Ex-div:09 Sep   
Payment:08 Oct   
£1=€1.17 *Includes intangible assets of €1.90bn, or 1,051ȼ per share