EUR 850.00 For Business Accounts Only

Morningstar | Saint-Gobain 3Q Sales In Line; Trends Remain Positive

No-moat Saint-Gobain reported third-quarter revenue of EUR 10.3 billion, up 2% over 2017 and broadly in line with our expectations. Organic growth was 3.1%, but this was all due to pricing, as volumes declined 0.4%. This is slightly concerning, as pricing is primarily reacting to rising input costs, which means the price increases are not necessarily big enough to offset the input cost inflation. At the end of the first half, margins were tracking below our expectations. However, Saint-Gobain was facing tough comparables in high-performance materials and exterior solutions, so we are not overly concerned about the lack of volume growth in the quarter. We don’t expect to make a significant change to our EUR 42 fair value estimate. At current levels, the shares look undervalued.

Saint-Gobain remains upbeat on its prospects for the rest of the year and confirmed 2018 guidance. French new construction and renovation markets remain robust. Indeed, the biggest issue now is a lack of skilled labour in the country. In the rest of Europe, the Nordics remain strong, while weakness is mostly limited to the U.K. The company continues to see good momentum in Asia and the emerging markets, with 7.1% organic growth in the third quarter over 2017. We think this may soon deteriorate, given indications of slowing growth in China.

We were pleased to see Saint-Gobain report improving trends in its pipe business, as this business has been a drag on performance for some time. The company also launched a process to sell its pipe business in China. We would not be surprised to see more parts of this business sold as part of the company’s recently announced divestment program.