Uponor Corporation Stock Exchange Release September 15, 2020 at 4:15 p.m.
Payment date for the second installment of the 2019 financial year dividend
The Annual General Meeting of Uponor Corporation on March 16, 2020, decided that a dividend of EUR 0.53 per share would be paid for the 2019 financial year. The dividend will be paid in two installments. The first installment of EUR 0.26 per share was paid in March. The Annual General Meeting decided that the second installment would be paid in September, and Uponor Corporation’s Board of Directors would decide on the dividend payment date at its meeting in September.
The Board of Directors has today decided that the second installment of EUR 0.27 per share will be paid on September 24, 2020. The record date for dividend payment is September 17, 2020.
Uponor Corporation
So, by buying today, you get a dividend of just over 1.8% and (possible) tax payable.
I bought more Uponor yesterday and today I added a small batch following instructions for returns. Kauppalehti also boosted the share today with its article, fittingly. The surprisingly cautious forecasts and target prices from Handelsbanken, OP, and even SEB, will now nicely face upward pressure. The consensus for Q3 EPS, for example, was €0.24 (€0.26 Q3/2019), and now that is likely to improve. By watching statistics and newspaper articles from different countries, keen observers have noticed that the construction sector has been on a good rise after the corona shock (e.g., Germany, Finland, and the USA). I prefer Uponor in the construction sector over, for example, construction companies, because the pricing error seems to be greater here due to a lack of monitoring and reporting. The current licensed and ongoing projects are supporting the sector well for now. It’s difficult to say anything about the period after next summer yet, but it’s definitely worth following the statistics from different countries, as correlation can be found. The well-implemented savings program is also a big plus. Tomorrow, US housing starts and building permit figures will be released.
The construction sector of Europe’s largest economy has so far survived the corona crisis with minimal damage.
In Germany, construction currently has the best prospects. Rakennuslehti 11.9.2020, (image from paper version)
{“content”:“I, on the other hand, sold with good quick profits when foreigners so desperately wanted to buy. Most likely too early.”,“target_locale”:“en”}
I’ve been calculating this guidance-returning company as well, and what one can and should note in addition to the calculator smoking is that risk-adjusted return improves considerably when guidance is returned. Visibility improves and the balance is in order. In addition to the result improving (I generally believe this to be true for others as well), valuation multiples also rise.
Uponor’s P/E ratio is the only one that is a bit high, although it has always been that way with P/B, with the former ranging from 14-17 and the latter at 3.
EV/EBIT and EV/EBITDA multiples (for the current year) are 10-11 and 8-9, respectively. Uponor would achieve an EBIT margin of around ten percent.
Return on capital settles between 20-22%.
It still tasted good to me even after the rises. Very interesting after a long time, and the potential has been scratched out, as has the focus. Even with the favorable assistance of changing costs.
Here’s what Kesko said in its positive outlook this morning:
“Growth in construction and building technology trade, both in B2B and consumer sales, has continued better than anticipated. At the same time, cost-efficiency has been improved. Expectations for the rest of the year in grocery trade and construction and building technology trade are more positive than before, partly due to household consumption shifting more towards domestic sources than previously estimated.”
“The earnings guidance is being raised due to better-than-anticipated revenue development in construction and building technology trade across various operating countries, as well as in grocery trade. In construction and building technology trade, consumer sales have developed better than expected during the exceptional circumstances. B2B sales in both hardware stores and Onninen have also continued stronger than anticipated.”
Yesterday’s US housing starts and building permits were slightly below forecasts.
Quote from Juha’s message yesterday on Sijoitustieto:
"Nordea raised the target to 18.5 euros and increased its Q3 EBIT estimates from 28m to 36m, taking into account ‘Our profitability development in the third quarter has continued at the same level as in the second quarter compared to 2019.’ "
“OP, on the other hand, wondered about yesterday’s share price increase and stated: ‘Due to the economic recession, we expect demand to slow down in the second half of the year, bringing with it downward pressure on pricing, and negatively affecting the development of operating profit.’ and ‘In conclusion, the earnings guidance did not offer much new information and was a rather expected announcement, and we do not believe this will lead to changes in consensus forecasts.’”
Sales of construction materials can quickly falter if/when the sector starts to show weakness, and it’s advisable to exit in time. However, the situation currently appears good, and stimulus has had a positive impact on the construction sector in Uponor’s market areas.
"This is indeed strong performance, and I’d be surprised if it doesn’t take off right from the start. A good time to be on board. The next quarter will be built upon a rather strong comparison period, and hopefully, we’ll continue with the same momentum.
Money now seems to be flowing quite nicely into construction, which is a cyclical/temporary phenomenon supporting Uponor. I wonder if, with the changes required by the pandemic, new operating methods have been found within the organization that could permanently lower the cost structure?"
[…] we believe that approximately 63% of this year’s earnings improvement is sustainable, and the remaining 37% is related to short-term factors, such as favorable raw material prices and temporary savings due to the pandemic. In our opinion, the stock is still affordably priced. […] Uponor has the opportunity to significantly increase its dividend […] Indebtedness has already fallen below the targeted level. We believe that Q4 results will also be strong, and we maintain our buy recommendation [18.3 EUR].
OP lowered Uponor’s recommendation to Add (previously Buy) and the target price dropped to €17.40.
=> The reason for the decrease is the decline in the earnings multiples of comparable companies used in the valuation (2021-22 EV/EBIT multiple 11.7x, to which a 5% discount is applied due to Uponor’s weaker profitability)
Uponor’s results inspired me to create a table, even though I didn’t buy Uponor and missed out on the returns.
Revenue almost unchanged, January-September revenue growth +2.6%
2020
2019
change
Q3
€301.0 million
€292.4 million
+2.9 %
Q1-Q3
€855.5 million
€833.9 million
+2.6%
Comparable operating profit and earnings per share
2020
2019
change in operating profit
EPS (2020)
EPS (2019)
Q1
€29.5 million
€14.3 million
+106.2 %
0.30
0.10
Q2
€36.2 million
€25.3 million
+ 43.0 %
0.21
0.18
Q3
€49.7 million
€31.3 million
+ 58.7 %
0.43
0.26
Q1-Q3
€115.3 million
€70.9 million
+ 62.7%
0.94
0.54
Full year
€92.7 million
0.72
Comparable operating profit by segment
Building Solutions Europe
Building Solutions North America
Uponor Infra
Q1'20
12.8 ( 7.2) + 76.5%
16.8 ( 7.5) +123.8%
1.7 (0.6) +190.6%
Q2'20
13.2 ( 8.2) +60.5%
15.1 (13.8) + 9.3%
7.3 (5.4) + 36.7%
Q3'20
17.2 (10.9) +58.1%
27.1 (16.8) +61.5%
7.9 (4.9) + 62.6%
According to Nordea’s analysis, the earnings improvement can be divided into sustainable/short-term (63/37)
Short-term factors (37%)
Raw materials:
− “raw material prices have increased since the second quarter, but purchasing and manufacturing costs have remained favorable compared to the previous year”.
− For raw materials, at the beginning of October, LyondellBasell raised North American polypropylene prices by 3 cents/lb ($66/ton). (link)
European market uneven, large differences in building permits (August Germany +5%, Finland -12%)
US housing market in strong upturn − Q1’20: March housing starts rate fell 22% from February, but was on par with March 2019 − Q2’20: June housing starts were down 4% from June 2019, but up 17% compared to May. − Q3: September housing starts were at rate of 1.42 million, 11% above September 2019 rate
− Employment for higher-paid workers in the US recovered quickly => room to invest in renovations
− Prices of new residential houses rose significantly due to limited supply
=> Research from 1985: builder confidence in the market reached an all-time high
Sustainable factors: (63%)
In the earnings report, I found at least improvements in operational activities: “Improvements in operational activities, especially in production yield, also supported the improvement in results compared to the previous year.” Uponor did not elaborate on this, nor was there any information about it in OP’s analysis. Yield could have been supported by factors such as:
Operational excellence program started in 2019 (harmonization of processes, savings in procurement)
North American results were likely supported by the second production facility opened in 2018 (Hutchinson, MN)
=> Annual Report 2019, p.7: “In North America, capacity constraints hampered service provision and also affected cost levels in previous years.”
In 2019, there were challenges in the production of the new S-Press Plus fitting series => now production is in order
Enhancement of PEX pipe production started in 2018 at the Virsbo production facility, Sweden
Q4’20: pace likely to slow.
The comparison period Q4’19 was exceptionally strong (Q4’19 revenue €269.2 million and operating profit €21.8 million).
Due to seasonality, Q4 is quieter than the preceding quarters Q2 and Q3.
“The significance of some drivers that positively impacted this year is less towards the end of the year.”
Demand outlook remains weak, even though guidance was reinstated
Savings program continues (2021 target €20 million in savings). This year, €5 million in savings has already been achieved.
Support packages can support the growth of demand for renovation and new construction in residential building
Uponor doesn’t seem to generate much interest/discussion here. It’s not followed by Inderes, of course, and the office space is boring, but as we know, “boring is good” often holds true.
The company has clearly beaten forecasts this year, with Q1-Q3 EPS at €0.94. Q4 is traditionally weaker than the others, but even so, with a share price of €17, the P/E ratio remains quite attractive given the current stock market. The company’s balance sheet is becoming a bit too strong (net gearing in the Q3 report was 18.6%), and what particularly warms my heart is the return on capital of over 20%. The numbers are pleasing.
Uponor seems quite cautious in its communication, which is probably smart in this situation, but it also offers good opportunities for exceeding forecasts. Coronavirus stimulus will very likely support construction (especially in infrastructure), which should benefit Uponor in the coming years. Zero interest rates should keep the housing market (construction) lively, unless the employment situation changes dramatically. I also see megatrends (urbanization, climate change) on Uponor’s side in the long run.
It’s always nice to read positive views, but what risks/negative factors do you think there are here? Tight growth, sustainability of the current earnings level, cyclicality of construction, rising oil prices? Am I missing anything essential?
“The company’s comparable operating profit improved by over 60 percent in January–September.”
“It has actually improved its comparable operating profit since 2013. The dividend curve has been pointing upwards for years, and a growing dividend is again expected for 2020.”
“Exceeds the target operating profit margin of over 10 percent.”
"About two-thirds of the operating profit has come from the United States, but this year it is expected to achieve strong performance in all its segments, from building technology to infrastructure.
The company makes money when metal pipes are replaced with plastic ones in the USA. Their installation speed brings in orders, and a production facility opened in Minnesota in 2018 is meeting the growing demand."
“Four out of five analysts recommend buying Uponor’s stock. They have noticed that Uponor knows how to make money in any economic cycle. Management is still cautious.”
The average target price appears to be €18.14, meaning it seems fully priced. This year, an earnings per share of €1.23 is expected, but only €1.03 for next year, if the tables in Arvopaperi magazine are to be believed.
Addition: This management caution seems to be inherent in all companies where the Paasikivi family has a significant ownership stake (almost 25% in Uponor).
Just now, there were strong building permit figures in the USA. Almost 100,000 more than expected. Yes, a lot of Uponor (Uponor) pipes will be used next year as well.
