Kingspan investors wait to see what €6bn can buy as shares pause after 40% rally

A declaration of war on data centres by prominent US Democrats, led by Bernie Sanders and Alexandria Ocasio-Cortez – in the wake of the midterm elections’ blue wave – wiped more than 14 per cent in two days last week off the value of companies involved in building the nerve centres of the artificial intelligence (AI) arms race.

However, a specialist stock market gauge that tracks US companies in the global data centre supply chain – the MarketVector Data Center Supply Chain Index – has since recovered most of its losses. That’s despite a slump by AI computing giant Nvidia, a component of the index, this week as founder Jensen Huang’s extramarital affairs gave business pages a tabloid moment and led to his exit on Thursday.

Wall Street’s emerging conclusion: the backlash against data centres – reflected in voters backing restrictions in all but one of 41 data centre-related ballot measures across 10 states last week – may slow the buildout, but is unlikely to stop it.

No Dublin-listed company has more exposure to the boom than Kingspan.

The Cavan-based group cleverly drew attention to this late last year by putting it out there that it was considering floating its Advanced Building Systems (Advnsys) unit, which first gained a foothold in the market with raised access flooring for cabling and underfloor cooling. It dropped such plans in January, saying it would maximise shareholder value by retaining 100 per cent ownership. Kingspan shares had jumped as much as 14 per cent in the meantime.

Kingspan said in a trading update on Monday that Advnsys sales jumped 53 per cent in the third quarter of the year, up from a rate of 34 per cent recorded in the first half. The divison’s order intake for the first nine months of the year stood at €2.7 billion – more than double that of the same period last year.

The group signalled a landmark expansion of its data centre business in August by agreeing to buy Meath-based BMC Manufacturing Group, which designs and makes low-voltage switchgear and critical power-management solutions for the industry, in a deal valued at up to €900 million. The acquisition, by far the group’s largest, was completed in September.

At an investor day held this week at a new group facility in Oklahoma, chief executive Gene Murtagh outlined an ambition to more than double the group’s trading profits to about €2 billion by 2030. It assumes that Advnsys’s earnings will triple over the period to make up half of group profit, while its traditional core business, insulated building envelopes, expands at an annual rate of about 5 per cent.

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Kingspan told attendees that it has close relationships with four large technology groups – or hyperscalers – driving the data centre boom. “We are basically part of their design team,” UBS analyst Julian Radlinger cited executives as saying.

“The team seemed unfazed by recent AI concerns given committed capital from customers and Advnsys’ allocations within this,” said Jefferies analyst Priyal Woolf in a note to clients following the event.

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The 2030 profit target assumes that data centre growth will slow after 2027 and that there will be no real growth – but market share gains – in Kingspan’s challenged other commercial and residential end-markets.

Radlinger said the group’s new US commercial roofing business could conceivably see sales grow from $150 million-$200 million (€135.7 million-€180.9 million) next year to $1.2 billion by the end of the decade.

Kingspan’s big calling card is that it will be able to give customers a total warranty covering roofing and walls, as most issues in buildings come from the joints between both, according to Woolf. “Most systems having separate roof and wall suppliers [means] it often creates a lack of accountability and confusion as to who deals with any issues,” she said.

However, the stock market reaction to the trading update and medium-term targets has been somewhat muted, with the stock advancing a little over 2 per cent this week, leaving it hovering almost 9 per cent off a record high of €106.60 reached in September.

The €2 billion target has been widely viewed by analysts as achievable, requiring about 10 per cent growth in each of the last two years of the strategy from the current consensus forecast for 2028. Goodbody analyst Shane Carberry highlighted in a report that the €2 billion can largely be achieved without a significant boost from acquisitions – leaving obvious upside from potential deals.

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Kingspan told analysts it has about €6 billion of firepower to spend over the coming years. Management did not clarify how it plans to spend the cash, other than to point out that acquisitions have accounted for more than 70 per cent of investment in recent years.

The consensus €128.50 share price target of 17 analysts that cover Kingspan points to about 32 per cent upside from current levels.

But with the stock up 40 per cent over the past 12 months, investors seem happy to stay on the sidelines as they await more clarity on the outlook for AI spend – and how Murtagh plans to deploy his war chest.