TheChek News Flow

We think there are some risks potentially pressuring St Gobain in the coming quarters.

While emerging markets account for only 19% of sales, they represent 30% of

operating profits with the main exposures into Latam (Brazil), Asia (India, China) and

Eastern Europe. Around 20% of operating profit comes from the US, but within that

we estimate c40-50% comes from industrial exposures (mainly in HPM) where recent

data points have indicated a slowdown. France remains the key area of upside in due

course, however recent data points (housing starts, permits, Q3 cement volumes) show

little evidence of end market turn-around for now.

We cut our 2015E EPS by -2% and thereafter by c-5% p.a. 2016E consensus of

c€3.1bn operating profit is too optimistic in our view, and implies c+16% organic

operating profit growth, incorporating a c-2% headwind from FX next year (based on

current spot rates). Considering global growth dynamics we think c+5% organic

operating profit growth is more appropriate, which puts our 2016E operating profit at

slightly below €2.8bn, >10% below consensus and EPS c-20% below consensus.

Consensus estimates imply >15% LFL operating profit growth in 2016E, which we

believe is highly unrealistic.

St Gobain will release Q315 sales aftermarket on 28th October. We expect LFL sales

growth of +1.4% (after Q2 +2.1%) and total sales growth of +3.4% y/y. We see FX

still delivering a tailwind of +2.2%, but lower than H1 (+4.6%). We expect France to

continue to decline albeit at a lower pace than H1, emerging markets to slow after a

robust showing in H1 (+4.8% y/y LFL), North America to grow but held back by the

industrial exposure and the rest of Europe to continue to grow around 2%.

Our PT is based on DCF, utilising LT normalised EBIT margins of 8.7%. At our PT the

shares would trade on 15x 2016E P/E including the expected accretion from Sika which

we include from 2017E.