Kingspan shares rise as UBS upgrades stock to 'buy' on earnings growth outlook

Investing.com -- Shares of Kingspan Group (IR:KSP ) rose over 4% on Thursday following an upgrade by UBS analysts, who raised the stock to a "buy" from a "neutral" rating, citing a favorable outlook for the company’s earnings trajectory in the coming years. 

As per UBS, the shares had underperformed recently, making the current price an attractive entry point ahead of a potential earnings recovery in 2025. 

UBS analysts project that Kingspan could achieve significant earnings growth through strategic expansions, with projected annual EBITA growth of around 10%, with a target share price of €90.

The optimism stems from several growth areas identified by UBS, such as the expansion into U.S. roofing markets, increased capacity in insulated panel production, and a targeted €200 million EBITA from Kingspan’s Data Solutions segment by 2027. 

UBS mentioned a €400 million potential uplift in EBITA over the medium term through these initiatives, along with a stabilization in raw material costs that could improve profit margins. 

UBS’s price target is based on a discounted cash flow valuation that anticipates long-term EBIT growth of 10.5% annually, reflecting Kingspan’s demonstrated resilience and adaptability in fluctuating market conditions.

UBS indicates that while the company’s earnings for 2024 are expected to remain flat, momentum into 2025 appears stronger. 

Expected contributions from recent acquisitions, such as Nordic Waterproofing, are likely to add an estimated 4% to 2025 EBITA, alongside organic growth of around 7%. 

UBS believes the stabilization of input costs, especially steel, along with volume growth in Kingspan’s core markets, could help the company offset the drag experienced in 2024.

UBS also noted Kingspan’s strong track record, with its sales having grown by an average annual rate of 11.5% since 2000. 

Despite the temporary stagnation this year, the brokerage expects Kingspan to rebound with double-digit growth rates, particularly if its expansion into roofing and data center insulation meets or exceeds expectations. 

Source: Investing.com