Good Afternoon ,
The market is like the weather changeable… By Friday the market had sucked the life out of a lot of people , stocks were going down on low volume , we were heading into the reporting season in
Monday however and Kingspan go against expectations and not only beats expectations but there are upgrades for 2010 in the order of 14% . We were perhaps lucky to not get into the middle of the pack and rush to cut our numbers. I won't claim it was because we were inspired but It has worked out well. It would appear that there may have been some expectations management in Kingspan with forecast revisions into the result which ultimately were better. The stock which was down -5% on Friday reversed the trend and rallied +9% at one stage before closing up just under 6%
Our view as articulated by my colleague Aisling is as follows…. The strong balance sheet combined with an improved trading outlook has enabled the company to reinstate the dividend. For the full year, we now forecast a dividend of 10c per share versus our previous forecast of 8c. For FY11, we expect the dividend to increase to 15 cent per share in the absence of a sizeable acquisition. It is clear that Kingspan has the appetite and the balance sheet to engage in M&A but the management indicated that vendors' expectations remained too high given the level of uncertainty both in the sector and at a macro level. Beyond maintenance capex, Kingspan has no need to invest in additional capacity for a number of years. Overall, management's commentary was quietly confident but they did highlight their concerns around the raised access flooring division into FY11. While the stock has performed poorly in recent months (down 20% in the last three months), it still trades at 15.6x FY11 EPS and only a 4.8% FY11 free cash flow yield and a 2.7% dividend yield.
My view is that the Recommendation which is a hold as it reflects the uncertainty in general and a valuation which does not look very cheap but there is a lot of leverage to improvements in performance. I think it is time to begin thinking of the catalysts that could lead to this one being a strong buy. Certainly any pickup in
Tomorrow we look forward to CRH and Aer Lingus. CRH is still trading nervously and gave away most of the market related bounce of today into the close. Again the market has been very bearish about this one though some smart bears have been going neutral or even reversing their positions. I was surprised that the market is not differentiating between the Materials companies at all given their identical recent performance so I remain optimistic that al the news that is likely to come out is already discounted. My guess for a closing price for CRH tomorrow in the Merrion (lose your mind ) sweep is eur14.70 by the way…
I look forward to seeing the Aer Lingus CEO tomorrow. Also , they have gotten into something of a winning habit with a developing track record of having something to please the market. I suspect that tomorrow wont be any different.
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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