Davy Morning Equity Briefing
Apr 26, 2024
Saint-Gobain Group
Solid Q1 update; full-year guidance confirmed
Saint-Gobain has had a positive 2024 so far – it has achieved a small sequential improvement in volumes, pricing continues to capture a positive price-cost spread and M&A activity has been brisk but targeted. The confirmation of a fourth consecutive year of double-digit margins is not a surprise but reaffirms the company’s higher level of earnings predictability.
Kingspan Group
Still on track
Kingspan’s trading update suggests the group’s performance remains solid despite an unfavourable pricing backdrop. The latter should ease as a headwind in H2, and Kingspan overall remains positioned to make further progress this year. We expect little change to headline consensus estimates for the year, which are consistent with our trading profit forecast of €914m. We reiterate our confidence in Kingspan’s ability to remain a sector leader and that it will continue to reward investors.
SCA
Q124 EBIT consensus miss of 3.5% but improving pricing outlook
Lower prices (in wood, pulp and containerboard) saw Swedish forest owner SCA’s Q1 2024 operating profit fall 33% year-on-year (yoy) to SEK1,077m, a 3.5% consensus miss, principally due to lower-than-expected profit in pulp and containerboard. Positively, prices are rising in pulp, containerboard and wood products in 2024. While some investors remain fearful of forest value write-downs, we remain confident of both cyclical (1) pulp, containerboard and pulp cyclical pricing recovery and (2) SCA’s organic expansion projects in pulp (CTMP), containerboard (Obbola) and renewable energy – supporting SCA 2024/2025 profit growth.
Greencoat Renewables
Strong NAV performance; to initiate buyback programme
Greencoat’s recent performance highlights the quality and differentiated nature of its portfolio. Its higher contracted cashflow mix means net asset value (NAV) was broadly unchanged in Q1 at 111.6c/share (from 112.1c/share). NAV remains just 1.4c/share below peak Q3 2023 levels (113.0c/share) despite a likely c.35% reset in near-term power price forecasts over the same period. Furthermore, strong cash generation remains a steady source of value creation – underlying NAV growth was +1.1c/share in Q1, or +2.7c before dividend payments, impressive for a single quarter. Its performance and positioning are clearly at odds with its current valuation. For that reason, Greencoat will initiate an initial €25m share buyback programme – at the current share (the stock is trading on 0.77x Q1 24 NAV), its 9% portfolio discount rate represents a levered IRR opportunity of almost 12% – a net equity risk premium of 8.4%.
