Kingspan upgraded to ‘neutral’ by UBS as Grenfell inquiry concerns to have limited financial impact

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Kingspan Group PLC (LON:KGP) was upgraded to ‘neutral’ from ‘sell’ by UBS as analysts think the risk-reward is more balanced considering the current valuation and the mid-term outlook.

In November, the building materials company acknowledged historical shortcomings in fire testing as part of the Grenfell inquiry, with shares down over a third ever since.

While the cladding scandal raises “pertinent” concerns, the investment bank estimates their financial impact to be limited.

The UK Government’s announced recladding effort does not include changes to insulation and also has not focused on the material manufacturers, although some companies may consider voluntarily contributions to this effort as a gesture of goodwill.

Conversely, the repercussions for companies’ ESG credentials could have a longer term impact, according to UBS.

“We think the key takeaway from the Grenfell inquiry is that there were ‘shortcomings’ in historic fire testing. Our conversation with legal experts suggest limited risk of a fine/product liability costs,” analysts commented.

For Kingspan, the outlook is mixed due to a high non-residential exposure, which is around 80%, while cost inflation remains an issue.

“The mid-term picture for the company remains positive, driven by increased demand for carbon reduction in buildings,” analysts concluded.

“Mergers and acquisition will remain important to grow and in that respect additional competition for assets (e.g. Firestone being acquired by LafargeHolcim) is unhelpful, but arguably nothing new.”

Shares rose 4% to €56.45 on Thursday at noon.

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