Drop in orders at Kingspan points to broader slowdown in European construction sector

Gene Murtagh, CEO of Kingspan

Jon Ihle

A sharp slowdown in future orders at building materials firm Kingspan points to a chill in the construction sector and a possible recession, according to stock market analysts.

The Cavan-based insulation manufacturer, which is a bellwether for the building industry, issued a trading statement on Monday noting a significant reversal in demand for its products across most of its markets in the last two months.

While Kingspan is expecting record profits for the first half of 2022, investors focused on the downbeat forward guidance and dumped shares across the sector.

Kingspan stock fell by 11pc but its peers did not escape a lashing, with rivals Rockwool and St Gobain both dropping 5pc, as analysts warned that the company’s update would feed a growing recession narrative.

“With the markets eyeing a potential recession in 2023, we expect Kingspan’s comments on demand to be taken negatively by the market overall despite no real impact on consensus estimates for 2022,” said Exane analysts in a research note.

The French stockbroker estimates Kingspan’s order declines to be in the double-digit range, despite a buoyant forward business book that was up 19pc in March over the previous year.

Morgan Stanley noted the “strong deterioration” and highlighted that no single market or region was driving the slowdown, indicating the fall-off in orders was occurring on a broad basis.

“Interesting to note we think this is the first large company to highlight a notable slowdown in demand in European building materials,” the investment bank said in a note.

Three-quarters of Kingspan’s business is in Europe, with the bulk of the rest coming from the Americas. UK and Ireland are estimated to account for about 15pc of total revenue, although Ireland has been a decreasing contributor as the company has expanded internationally.

The company’s shares had already fallen 35pc since the start of the year as the market anticipated bad news.

Goodbody analyst David O’Brien said that although investors in the sector were now focused on short-term trends, Kingspan was positioned to outperform its peers.

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