I’d ignore buy-to-let to invest in this stock for capital gain and income instead

Bryan Williams explains why he believes Kingspan Group plc (LON: KGP) is a great candidate for readers’ portfolios.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Ask an investor about growth stocks and you’re more than likely to be greeted with a list of the latest tech wonders. It is rare indeed that construction companies are even given a mention. Be that as it may, there are some gems worth considering in this market sector. One such investment that may well offer the possibility of serious capital gain is Kingspan (LSE: KGP).

What are the numbers?

Since 2013, revenue has grown from €1.78bn to reach €4.37bn according to the 2018 report released in February of this year. This represents a rise of a massive 146%. Or to put it another way, a compound annual growth rate (CAGR) of over 19%; not too shabby.

Holders of the shares have also had stellar improvements in the dividend. Over the same period, the company increased its payout from 0.14c to 0.42c a share, a CAGR of an incredible 24.5%.

Finally, a favored metric for investors, the return on equity (ROE) is an astonishing 20%. For those unacquainted with ROE, this figure shows how well a company’s bosses are deploying the shareholders’ capital. For any business, the higher the ROE, the better. For comparison, the ROE figure for Barratt Developments is 16.6%.

So what has driven this amazing expansion?

Well, I would say that there are three main reasons: astute acquisitions, developing a worldwide presence and the company’s predominant position in providing particularly high-demand products.

One of the key product lines for Kingspan is the supply of thermal insulation panels and boards. These days, with the focus on saving energy to either heat or cool buildings, insulation is an important factor and is driving demand. Over the years, the company has bought or invested in local suppliers of these thermal materials, thus allowing for an expanding global footprint for its wares.

Most recently, companies in Spain, Poland, Finland, India and Brazil have been purchased, giving ever greater opportunities to develop. The company has also invested in the Middle East, which has a very large market for thermal insulation. Visiting places such as Dubai, visitors may wonder at the cost of keeping shopping malls and other buildings at what seems to be a near zero temperature whilst outside its often around 40 degrees Celsius.

Peruse any magazine about information technology and you are bound to read the words “data centre” at some point. These data centres are essentially very large buildings filled with computers and servers that allow for companies such as Amazon and Facebook to provide their services. In recent years, there has been an explosion in the number of these facilities around the globe. Within these buildings, one essential element is a raised floor to allow for the vast quantities of cabling required for them. Another shrewd addition to the Kingspan stable was Tate Access Floors, a world leader in the supply of such computer room flooring.

It is also worth noting that whilst Kingspan’s product lines may appear to be low tech, the company’s stated aim is to spend 1% of revenue on research and development. This means that a hefty €43m is currently spent on maintaining its market-leading position, which bodes well for the future.

To sum up

A series of canny investments and the development of a global presence has led to remarkable growth for this company. It’s my firm belief that additional acquisitions and further worldwide development will prove a winning combination for investors.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Bryan does not have positions in any company mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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