Saint-Gobain: Major Beneficiary of Recovery in European Construction, particularly in France

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  • Volumes still 12.8% below 2007 levels. With the subsequent growth in emerging markets this implies even more substantial recovery potential in developed countries, particularly in Europe.
  • France key to recovery. France accounted for 25% of Saint-Gobain’s sales in 2016 when it was still one of the more depressed markets in Europe. However, 2017 has seen the start of an upturn in the repairs, maintenance and improvement market, which we estimate accounts for 55-60% of Saint-Gobain’s French sales.
  • Recovery potential mainly in six areas. We estimate that there are six businesses where a return to more normal levels of demand and profitability would boost Saint Gobain’s operating profit by 28% (€868m) compared to our 2017 estimate.
  • Recovery in European housing markets. This is now well underway, and we estimate that a return to more normal levels of demand could boost the contribution to operating profits by €368m in Construction Products and by €100m in Flat Glass.
  • Upturn in French Distribution. This is Saint-Gobain’s largest business, accounting for 19.1% of total sales in 2016. Demand started to improve this year, and we estimate that at more normal levels of demand the businesses operating profit would be around €165m
  • Pipe, US Insulation and Proppants. We estimate that at more normal levels of demand in these three businesses would add an additional €75m, €110m and €50m respectively to Saint-Gobain’s operating profit. The recovering oil price will directly help the proppants business through boosting fracking demand and should indirectly boost export business for the pipe division, many of whose customers are oil producing countries. The return to more normal levels of profitability in US insulation requires a further recovery in the pricing of domestic insulation, which we expect as the US housing market continues to recover.

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