Kingspan has firepower for ‘up to’ €500m of further deals

Insulation manufacturer Kingspan has the financial firepower to carry out an additional €500 million of acquisitions, though it is likely to take a breather from further deal-making for the remainder of this year as it digests recent purchases, according to the group's chief executive.

Speaking to The Irish Times after the Cavan-based group posted better-than-expected first-half results, Gene Murtagh said the group would be able to spend "about €400 million to €500 million" on more deals without breaching its internal rule of keeping its net debt below two times earnings before interest, tax, depreciation and amortisation (ebitda).

Mr Murtagh spoke after Kingspan reported its sales rose by 15 per cent in the first half to top €2 billion for the first time, helped by a pick-up in the UK market, which had shown signs of weakness earlier in the year.

Trading profit rose by 10 per cent to €195.3 million, with a boost from acquisitions offset by a slight contraction in the group’s trading margin. Mr Murtagh sees the margins picking up in the second half of the year as it continues to pass on a recent increase in raw-material costs to customers, and as it scrapes out cost synergies from purchased assets.

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Acquisitions

During the first half, Kingspan completed €265 million of acquisitions, including Barcelona-based Synthesia, giving the group a leading position in insulation panels and insulation boards on the Iberian peninsula, and a Norwegian water treatment plant called Vestfold Plastindustri. Last month, the company spent a further €220 million buying control of insulation businesses in Poland and India.

Shares in Kingpan soared 9.3 per cent to €42.48, giving the group a market value of €7.65 billion, as investors digested the results.

“Performance was helped by improved momentum in the second quarter after a sluggish start to the year due to prolonged winter weather conditions,” said chief executive Gene Murtagh. “This momentum has continued into the second half in a number of key markets and underpins our encouraging outlook for the rest of the year.”

The Cavan-based group declared a 9 per cent increase in its interim dividend to 12 cent per share.

Kingspan said sales of its key insulation panels products rose by 14 per cent in the first half, which was topped marginally by a 15 per cent increase in insulation board revenues. Sales in the group’s light and air division rose by 57 per cent, driven by acquisitions and favourable currency movements, while the water and energy unit’s turnover was broadly flat.

However, access floors sales were down 7 per cent on the year, reflecting a “subdued US market and some slowdown in the UK”, the company said.

“We envisage a 4 per cent upgrade to group trading profit for full-year 2018 to €430 million,” said Goodbody Stockbrokers analyst Robert Eason. “Kingspan remains the quality play within the global building materials sector.”

While Mr Murtagh said the prospect of the UK crashing out of the European Union without a Brexit deal would lead to “chaos”, it would ultimately force both sides to “reach some kind of a settlement”.

In the meantime, he said, the group sees the residential building market in the UK as “reasonably stable” at the moment, though “anything that’s remotely discretionary” elsewhere in the construction industry “is on a go-slow or being postponed”.