INTRO
Rockwool is a Danish pure-play insulation conglomerate. The stock is currently depressed by macroeconomic headwinds and recent seizure of its Russian assets.
STRATEGY & MARKETING
The stone-wool market has high barriers to entry due to capital intensity. Rockwool is vertically integrated, mitigating reliance on suppliers. Rockwool is gaining market share, driven by superior performance compared to traditional glass-wool. The superior performance comes from fire safety standards and product longevity. It is not unlikely, that increased timber constructions and data centers, are going to be growth drivers in US in the short term, while re-insulation regulation and reconstruction of Ukraine are “going to be” European drivers.
VALUATION
Rockwool is priced at a earnings yield of 7,5% Well bellow historical averages. Though, “on par with peers”. Rockwool has a strong profitability expressed by:
Return on non current assets = 21%, Return on revenue = 14%.
And a strong balance sheet expressed by:
Liabilities/Assets = 20%, Income/Liabilities = 69%.
Furthermore, assets contain barely any intangibles such as goodwill. Finally, the high earningsyield should be seen in light of also high earnings-growth, driven by margin expansion & revenue-growth. .
10 year compound earnings growth at 20%, 10 year compound revenue growth at 6%.
CONCLUSION
Rockwool is a “Quality” company trading at a “Value” price. While the construction cycle is unpredictable, the Russian risk is now realized and likely priced in. Thus, the current valuation likely offers a significant margin of safety.
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