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30 Jun 2020
Q2 Previews: Fasten your seat belt, bouncy ride ahead
Compagnie de Saint-Gobain SA (COD:LON), 7,010 | Wienerberger AG (WIE:WBO), 0 | Travis Perkins plc (TPK:LON), 725 | Kingspan Group Plc (0KGP:LON), 0 | ROCKWOOL A/S Class B (ROCK.B:CSE), 0 | Armstrong World Industries, Inc. (91A:FRA), 0 | Trex Company, Inc. (TRR:FRA), 0 | Owens Corning (O5Q:BER), 0 | Ibstock Plc (IBST:LON), 148 | Forterra Plc (FORT:LON), 161 | Sika AG (0Z4C:LON), 0
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Q2 Previews: Fasten your seat belt, bouncy ride ahead
Compagnie de Saint-Gobain SA (COD:LON), 7,010 | Wienerberger AG (WIE:WBO), 0 | Travis Perkins plc (TPK:LON), 725 | Kingspan Group Plc (0KGP:LON), 0 | ROCKWOOL A/S Class B (ROCK.B:CSE), 0 | Armstrong World Industries, Inc. (91A:FRA), 0 | Trex Company, Inc. (TRR:FRA), 0 | Owens Corning (O5Q:BER), 0 | Ibstock Plc (IBST:LON), 148 | Forterra Plc (FORT:LON), 161 | Sika AG (0Z4C:LON), 0
- Published:
30 Jun 2020 -
Author:
Yves Bromehead -
Pages:
42
The lightside sector has rallied c.30% in the last three months on EU and US fiscal stimulus, EU renovation policy announcements and signs of a faster-than-expected recovery post COVID-19. Despite some relief, Q220 is likely to be one of the worst quarters on record in recent decades. We see an opportunity to buy cheap stocks where our H2 bridges suggest upside risk to full-year consensus. Top picks are SGO (+) and WIE (+) in Europe and OC (+) and AWI (= to +) in the US.
Q220 likely to be a bouncy ride but the outlook is clearing
We expect Q220 EBITDA in the lightside sector to decline by -45% led by a fall in volumes, disproportionate operational leverage and the timing of cost-saving measures. The UK brick industry is expected to be hit the hardest. We downgrade Ibstock to Neutral. For others, we think investors are likely to overlook Q2 disappointments and focus on winners in a recovery in H220.
SGO (+) a much faster-than-expected recovery
The group''s recent market update suggests the pace of recovery has been faster and stronger than expected. The current run-rate implies the group could experience a more positive H220. We also see the EU renovation wave (adoption in Q320) as a clear catalyst for the shares near-term.
WIE (+) guidance upgrade lurking ahead?
The group FY20 guidance seems overly cautious, implying a double-digit volume decline in H220. Assuming the recent recovery in Europe and the US continues in the summer, we believe management is likely to upgrade its guidance.
US lightside: Preference for US residential and cash-cow end-markets
The US residential market was expected to grow double-digits in FY20 pre COVID-19 disruption. With limited lockdown measures and a large backlog of homes to complete, Owens-Corning (+) stands to benefit most from a potential housing recovery in H220, and could beat Q2 ests. AWI''s (= to +) c.40% underperformance vs the rest of the sector seems too harsh given the group''s best-in-class...