Fiery Flash: Saint-Gobain

 

Shares of French company Saint-Gobain gained more than 8% over the past week after the German government announced the launch of a €500 billion infrastructure plan.

 

For Saint-Gobain, it all began in 1665 when the company started producing mirror glass. Today, it is a global player that designs, manufactures, and distributes high-quality materials such as flat glass, automotive glass, insulation, adhesives, mortars, and plasterboard for construction and industrial markets. Saint-Gobain operates in 80 countries with more than 161,000 employees and annual sales of approximately €47 billion. Of its sales, 21% are derived from Northern Europe, 29% from Southern Europe, the Middle East, and Africa, 21% from the Americas, 5% from Asia-Pacific, and 21% from High-Performance Solutions.

 

Saint-Gobain’s activities are cyclical, although this is partly counterbalanced by its diversified end-market exposure and broad geographical reach. Despite its cyclicality, the group’s business shows structural growth. The buildings and construction sector is the largest emitter of greenhouse gases, accounting for approximately 37% of global emissions. The greening of buildings and construction is a key driver in the battle against climate change. Governments acknowledge this and support energy renovation projects. With its focus on innovation and light, sustainable construction, Saint-Gobain should be well positioned to benefit from the shift toward more sustainable buildings and infrastructure.

 

The need for better infrastructure is also a growth driver for the building materials industry. The planned €500 billion infrastructure plan, spread over 10 years, by the German government is a big deal. It could increase German construction spending by 10% compared to current levels. However, one should not overestimate the impact on Saint-Gobain, as less than an estimated 5% of its sales are derived from Germany.

 

Over the past few years, Saint-Gobain’s management, under the leadership of CEO Benoit Bazin, has done an excellent job of improving profitability and reshaping the portfolio. The company has shed low-growth, low-margin businesses and acquired higher-growth, more profitable ones. Over the past 12 months alone, Saint-Gobain finalized four strategic acquisitions for €5 billion: CSR (building materials in Australia), Bailey (metal building solutions for light construction in Canada), Ovniver (construction chemicals in Mexico and Central America), and Fosroc (construction chemicals in Asia and emerging markets). The portfolio reshuffling is expected to continue, and it is no secret that Saint-Gobain is considering divesting its auto glass business. Analysts estimate that this business could fetch up to €2.5 billion.

 

In 2024, the group achieved a record operating margin of 11.4%, a record net recurring income of €3.5 billion, and a record free cash flow of €4.0 billion. For 2025, management is guiding for an operating margin of more than 11.0%. However, bear in mind that the group tends to guide conservatively. Saint-Gobain boasts a very solid balance sheet (net debt/EBITDA of 1.4x), which provides room for further acquisitions.

 

Since the start of the year, shares of Saint-Gobain have gained approximately 22% and are hovering around all-time high levels. That is a very strong performance in a European stock market that has remained relatively flat over the same period. Today, shares of Saint-Gobain trade at approximately 17.5 times earnings, with an enterprise value/EBITDA ratio of 9 and a dividend yield of around 2.1%. That is no longer a bargain. A further rerating is not obvious and will require profit growth to reignite.