Investing.com -- European building materials makers face a muted third quarter as rising mortgage rates push construction confidence lower, RBC Capital Markets said on Friday in a sector preview ahead of results.
RBC also expects the second quarter's catch-up in volumes to unwind, and heatwaves and political uncertainty ahead of Spanish and French elections to weigh on demand.
Conditions vary across the region. Britain remains very challenging, and France has been hit by high temperatures and wildfires.
Germany may be "bumping along the bottom rather than getting worse," it said, while Spain and Portugal are performing better than the more northern markets of Western Europe.
Eastern Europe remains robust and the Nordic region is stable. RBC added that Rockwool management has flagged third-quarter softness in Germany and France after a strong second quarter, partly because 1-2 percentage points of growth was pulled forward from the third quarter.
The brokerage downgraded Paris-listed Compagnie de Saint-Gobain to "sector perform" from "outperform" and cut its price target to €80 from €97, citing a weak outlook for North American volumes and uncertainty before the French election in April. It forecasts Americas volume growth of -3% in the fourth quarter, against consensus of +1.6%.
RBC sees risk to Saint-Gobain's 2026 guidance because of higher cost pressure. It forecasts a core earnings margin of 14.9%, below the company's target of more than 15% and consensus of 15.2%. It cut its 2027 core earnings forecast by 7.6% to €7.33 billion from €7.93 billion, citing weaker U.S. roofing, lower European volume expectations and higher costs.
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RBC upgraded Frankfurt-listed Heidelberg Materials to "outperform" from "sector perform," citing an improving 2027 European construction outlook and recent earnings momentum. It trimmed the target to €211 from €217.
Heidelberg joins CRH and Dublin-listed Kingspan Group as RBC's top picks. Kingspan's target rose to €131 from €122, and RBC raised its 2027 core earnings estimate by 17.8% because its numbers now include the BMC acquisition, which closed on Sept 28.
RBC kept Holcim, Rockwool and Sika at "sector perform." It cut Holcim's target to CHF69 from CHF73 and Rockwool's to DKK195 from DKK197, and raised Sika's to CHF179 from CHF178.
Across its coverage, RBC is 2% below consensus on third-quarter revenue and 4% below on core earnings. It said pricing has struggled to keep pace with cost inflation.
RBC expects a gradual improvement in European materials pricing in the third quarter from the second across most products, after fast price rises at Sika, Saint-Gobain and Holcim.
It said attention is likely to shift quickly to 2027 pricing talks. Cost trends seen in Europe in the second quarter have continued into the third.
Makers of heavy materials such as cement are generally more exposed to energy cost inflation than makers of lighter products, but RBC expects both to see short-term margin pressure on materials and freight.
In the United States, RBC downgraded aggregates producer Knife River to "sector perform" from "outperform" and cut its target to $58 from $103.
It expects U.S. roofing volumes to fall by a high single-digit percentage in the third quarter because of a lack of storms. U.S. diesel prices are about 70% higher than a year ago, it said.
Original Article
RBC sees Q3 pressure on European building materials from weak demand, higher costs
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