Good Afternoon ,
Kingspan was the story of the day and the resuts defied the naysayers who had sent the stock down by 9% on Friday. Todays earnings release was Reassuringly, the stabilisation in trading conditions that emerged in Q3 is noted by management to be more tangible now. Orderbook trends indicate that business trends have become more predictable. Importantly, this implies that the visibility in the stabilisation of business has increased. The increased visibility is the key point, as while order trends have deepened, the trends vary widely from business to business, in part due to year earlier conditions – for example, orders in the first seven weeks of 2010 are up 20% yoy in the UK panels unit (partly reflecting very weak, prior year order intake), while the equivalent figure on the CEMEI panels unit is -15% yoy, reflecting a relatively resilient order experience in the prior year period. In both cases, the size of the percentage move is partly a function of the low absolute level of orders. Even in the late cycle Access Floor operation, the pipeline of target projects indicates that business will trough in late 2010 or early 2011. Cash generation was a highlight in the numbers, with net debt reduced by €135m to €164m, better than the €188m net debt we had forecast. This in part was due to better than working capital release. Part of this may be unsustainable given working capital to sales was reduced to 11%, whereas 13-14% is a more normal year end level. Capex will reduce further in 2010 to €25m (2009: €46m), reflecting the well invested nature of the assets. We remain of the view that earnings will start to recover in 2011 (EPS of 35c) and that we expect that mid-cycle earnings (65c) will be re-attained in 2013. The current valuation based on mid cycle earnings suggests a P/E of 9x and 1.3x EV/Capital Employed which is fair at this point.
I have to say I like it and the clarity of thought of the management and their track record at managing through the downturn. It is easier now to see how the significant investors who have bought in last year are taking a long term view of the recovery prospects. The liquidity will remain tight here. No reason to be nervous after today. I am re-assured on Kingspan.
Tomorrow AIB and Paddy Power and CRH vie for attention….it will be one busy day trying to understand and get our head around the three very differenct businesses
Have a good evening
Liam
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Liam Boggan
Merrion Stockbrokers
Tel.: 353-1-2404171
Mob:353-87-2313505
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