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20 Apr 2022
Valuation, valuation, valuation
Compagnie de Saint-Gobain SA (SGO:PAR), 0 | Wienerberger AG (WIE:WBO), 0 | Sika AG (SIKA:SWX), 0 | Ferguson Plc (FERG:LON), 16,950 | Travis Perkins plc (TPK:LON), 740 | Geberit AG (GEBN:SWX), 0 | Kingspan Group Plc (KRX:DUB), 0 | ROCKWOOL A/S Class B (ROCK.B:CSE), 0 | Armstrong World Industries, Inc. (AWI:NYS), 0 | Trex Company, Inc. (TREX:NYS), 0 | Owens Corning (OC:NYS), 0 | Ibstock Plc (IBST:LON), 149 | Forterra Plc (FORT:LON), 158 | Armstrong World Industries Inc Shs Unsponsored Brazilian Depository Receipt Repr 1 Sh (AWII34:BSP), 0 | ROCKWOOL A/S Class B (0M0A:LON), 0 | Invesco US Treasury Bond 7-10 Year UCITS ETF (TREX:LON), 0 | Wienerberger AG (0MKZ:LON), 0
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Valuation, valuation, valuation
Compagnie de Saint-Gobain SA (SGO:PAR), 0 | Wienerberger AG (WIE:WBO), 0 | Sika AG (SIKA:SWX), 0 | Ferguson Plc (FERG:LON), 16,950 | Travis Perkins plc (TPK:LON), 740 | Geberit AG (GEBN:SWX), 0 | Kingspan Group Plc (KRX:DUB), 0 | ROCKWOOL A/S Class B (ROCK.B:CSE), 0 | Armstrong World Industries, Inc. (AWI:NYS), 0 | Trex Company, Inc. (TREX:NYS), 0 | Owens Corning (OC:NYS), 0 | Ibstock Plc (IBST:LON), 149 | Forterra Plc (FORT:LON), 158 | Armstrong World Industries Inc Shs Unsponsored Brazilian Depository Receipt Repr 1 Sh (AWII34:BSP), 0 | ROCKWOOL A/S Class B (0M0A:LON), 0 | Invesco US Treasury Bond 7-10 Year UCITS ETF (TREX:LON), 0 | Wienerberger AG (0MKZ:LON), 0
- Published:
20 Apr 2022 -
Author:
Bromehead Yves YB | Speak George GS -
Pages:
34
Valuation, the main driver of lightside sector performance
The lightside sector has returned over 450% since 2000. Impressive earnings growth has been a key driver but it''s the rerating of multiples that catapulted share prices to new record-highs. Re-rating like this is famously hard to achieve, but we deep-dive across other industries to find success stories and how they share similarities with Saint-Gobain, Wienerberger, Travis Perkins and Owens-Corning (all + rated).
Where do we stand?
On a sector wide basis, the lightside now trades around the level of its 2017-21 average at c.13x EV/EBIT. This is still a 15% premium to its long-term average multiple of 11x with quality names still looking expensive relative to historical levels and value starting to look cheap.
Is quality too expensive?
Valuation multiples reached all-time highs in 2021 and despite the recent sell-off and derating of expensive quality names, multiples still look stretched. Sika (=), Kingspan (+) and Geberit (-) still trade above mid-cycle multiples putting them at risk of further derating. On the flip-side, Rockwool (-), AWI (+) and Ferguson (=) multiples narrowed closer to mid-cycle levels post recent derating.
Or value too cheap?
The value basket is trading at or below trough multiples implying a bear-case scenario is already baked into Saint-Gobain, Wienerberger and Owens-Corning multiples (all + rated). The risk-reward has never looked this attractive given all three names have made a successful strategic turnaround lately.
Risk and opportunities in the sector
We explore various multiple and earnings scenarios using peak, mid and trough multiples on bull, base and bear earnings scenario. The lightside value basket has never looked so attractive whilst risks remain for quality names if further derating takes place.