JPMorgan’s analysts, led by Elodie Rall, are increasingly positive on Europe’s building materials complex, citing a combination of falling input costs and improving volume dynamics as reasons to expect a better performance through second-quarter reporting. The bank’s team singled out three stocks as top picks ahead of Q2 results, arguing that recent trends could mark an inflection point after a period of relative weakness for the sector.
The sector has lagged broader European markets so far this year, trading about 6% lower year-to-date and roughly 13% behind the performance of the STOXX Europe 600. That underperformance, JPMorgan argues, increases the potential upside if the near-term cost and volume signals sustain.
Central to the analysts’ case is the interaction between pricing and costs. JPMorgan notes that if companies retain recent price increases while input costs continue to fall, the average margin expansion across names would be roughly 125 basis points. Within the coverage, Rockwool stands out as the likely biggest beneficiary, with the firm estimating an upside of around 400 basis points to margins if pricing holds alongside cost relief.
At the same time, the analysts cautioned that some pricing components are unlikely to persist. Fuel surcharges in particular are considered vulnerable - JPMorgan said these charges are "likely to not 'stick' and the companies to give these back," which would limit the upside to margins coming from surcharge recovery.
JPMorgan’s long-standing preference has been for the "Heavyside" cement sub-sector over "Lightside" products such as insulation and construction chemicals. However, the bank now suggests the combination of volume momentum and improved price-to-cost dynamics could shift investor attention to certain Lightside names.
The upcoming EU ETS Carbon Reform, scheduled for a July 17 clearing event in the analysts’ view, is another factor influencing investor behavior. JPMorgan expects the reform to act as a clearing event for cement - but notes that remaining uncertainty while the reform is signed into law may lead investors to favour Lightside exposures until clarity emerges.
Top stock convictions
- Holcim - JPMorgan is most favorable on Holcim, placing the company on a positive Catalyst Watch ahead of its July 31 results. The bank expects Holcim to demonstrate strong operational execution, with like-for-like EBIT forecasts running above the company’s guidance.
- Rockwool - Analysts are bullish on Rockwool, suggesting management’s margin guidance of 13-14% could be conservative and open to upward revision given recent pricing actions, volume growth and hedging positions.
- Saint-Gobain - JPMorgan anticipates positive like-for-like sales for Saint-Gobain that should support consensus estimates, and notes a more favorable comparison base as the year progresses.
The team also provided views across other names: limited surprises are expected from Buzzi; Heidelberg is seen as a potential positive surprise versus lowered expectations; and Kingspan, Sika, Geberit and Howden are rated as Neutral. JPMorgan noted that Kingspan’s shares have begun to give back earlier gains as the prospect of deflation appears, reflecting the company’s normal pass-through of pricing when margins are under pressure.
Overall, the bank’s analysis frames the coming Q2 reporting season as a potential turning point for a sector that has underperformed, with stock-level outcomes likely to hinge on whether price increases persist as input costs decline and how investors interpret the EU carbon reform timeline.