Saint Gobain now has less upside: UBS

Investing.com — UBS downgraded Saint Gobain (EPA:) to Neutral from Buy in a note Thursday, citing limited upside potential following a strong 2024 performance and re-rating of shares. 

“With the shares trading at 12-13x P/E, we think there could still be some limited re-rating potential, but modest,” UBS analysts wrote. 

The downgrade comes amidst concerns over rising interest rates, which could negatively impact growth expectations in residential end markets. 

UBS’s operating income forecast is slightly below consensus at -1%, while EPS is projected to be -5% below consensus.

The bank’s note highlights the challenges in maintaining the price/cost dynamics that supported margins in 2024. 

“2024 was characterised by a year when volumes disappointed due to soft end markets but margins (guided to be up vs a record 11.0% in 2023) offset this,” UBS stated. 

While they estimate a modest positive price/cost impact of €50 million in 2025, the analysts caution that it will be harder to achieve similar gross margin gains as in recent years. 

With a projected organic EBIT growth of +3% and total growth, including M&A and FX, of +7%, UBS expects total EBIT to reach €5,616 million, which is 1% below consensus.

Looking ahead, Saint Gobain’s upcoming Capital Markets Day (CMD) in the second half of the year could serve as a catalyst, particularly if margin guidance is increased. 

“We think a realistic target is 11-13%, bearing in mind some categories are at very elevated levels by historical standards,” UBS commented. They also point to potential portfolio changes, including reports of a sale of the automotive glass business, though this has recently been denied.

UBS has adjusted its price target to €92 per share, up slightly from €91, based on a discounted cash flow valuation using a WACC of 8% and a long-term post-tax ROIC of 10.5%.