Rockwool is in an attractive positioning; with superior product attributes, favorable developments in productmix and thematic tailwinds in energy security and sustainability. The shareprice is below historical norms likely due to macroeconomic uncertainity; and more accurately an potential slow down in construction due to increased interest rates and supply risk in energy markets. I argue, that the macro noise is temporary and that the current valuation does not reflect the capacity expansion Rockwool has underway. Assuming conservative return on net property plant on equipment, Rockwool has an realistic base case of increasing operating cash flow – depreciation with 40% over the next five years.
Risks and Opportunities
Rockwools customers [contractors] are in generel price inelastic as insulation makes up a small cost in a construction project. But contractors are negatively affected by increased interest rates, as construction becomes less attractive when the time value of money increases.
The discounted cash flow analysis; does not assume any slow down in construction, nor does it assume the projects are delayed. The risk is thus the demand for insulation drops due to macroeconomic conditions – and accordingly the high going ahead into factories that may or may not come online at a favorable time. Furher, an energy crisis would affect Rockwools production – especially with regards to natural gas which is used along with coke furnaces.
If energy supply becomes constrainted, to the point of energy deficiency across our system, factories would close down to ensure that people have heat in their homes. With backup energy storages running at historical lows in western nations, there is a bigger possibility of such a crisis, than we have experienced in many years.
Product innovation in glass wool might increasingly compete with stone wool products. Since the production of glass wool is more exposed to energy costs, stone wool as a product category, has been gaining marketshare in flatroof projects. An decrease in energy prices, might adversely affect this trend.
Finally, intermediaries might gain increasing leverage over Rockwool thus reducing margins. I have not been able to find the profit margins intermediaries broadly have when selling Rockwools products and information with regards to production facilities is sparce.
When Rockwool is investing into sustainability [electrification efforts] and automation – there is a minor risks of these capex expenditures to not materialize in satisfactory returns for the shareholders.
Advantages And Moats
Rockwool enjoys regional moats as stone wool is volumenous and rarely transported very far. Though, Rockwool is currently supplying United States with stone wool from Canada, to counteract weak Canadian demand and strong demand from the United States -> as of Q2.
Product attributes across product categories, have an direct effect on their applications. Datacenters, timber constructions and appartments are all contributing posetively to stone wool demand as these require strict firesafety standards. On the downside, stone wool is more heavy than glass wool, and therefor unusable in light applications like flights or boats.
Stone wool is energy intensive to produce, but due to the lower overall costs of a construction project, fire regulations and advantages for the end customer in terms of energy savings – The value proposition for Rockwools customers is immense. Rockwool has pricing power.
Model Assumptions
Assuming 2026 guidance hold, the modelling starts in 2027. Depreciation will increase yoy as Rockwool contiously invests in factories and equipment. The model assumes an operating income on PPE, that starts at 19% – and from 2029 grows 0,5% annualy. The modelled operating income on PPE is significantly below historical baselines (24,8%) and is a reflection of the lost Russian business which operated at a higher operating margin -> partly attributed to cheaper gas in Russia. The Russian business was seized in 2025.
The model assumes a capex/depreciation at a 1,2 ratio after 2028. This is below historical averages. Though, the slightly lower ratio, reflects a significantly higher denominator (depreciation). Thus, in total amounts capex will be significantly higher – but not relatively to depreciation. Thereby, the lower multiple reflects automation and electrification efforts.
Net working capital increases as factories come online. Initially accounts payable increases the most. The company buys basalt etc. to prepare for production. More factories require more input. Next inventories are the one increasing the most, but gradually over time. More factories will provide more inventory. Naturally, a new factory in a new geography, will need a localized buffer to accommodate customer needs. accounts receivables increase as Rockwools product is sold to intermediaries/retailers. To address the complexity of NWC, the model assumes slight changes to historical NWC to Accounts Payable, Inventory and Accounts Receivable as factories come online.
The model does not account for capital distributions and does not address Capex as an expenditure. Operating cash flow – deprection excludes capex as an costs, but includes the factories output in estimating increasing cash flow. While unconventional, I argue that money spend on the business, does not decrease the value of the firm nor shareholder value. Investment capex, is the capex excess depreciation as Rockwool continuosly renews smelters/factories over their usefull life. Depreciation is a real cost, capex is only to the extent of renewing production capacity, but is 1:1 with depreciation. Including capex along with depreciation would thus be double counting depreciation. The model can be considered a simplified Buffet Earnings, whereof depreciation in this case, is considered maintaince capex.
Notice that OFC is expected to increase following 2031, as net working capital reverts to the mean and – that time period is though, not included in the discounted cash flow analysis.
Fair value
Rockwools fair value sits at about 250 DKK,. The model takes ( operating cash flow – depreciation ) and discounts back at WACC at 8% over a five year period. WACC is estimated at 7% and an extra percent is applied to reflect high capex and supply risk.
Exit multiple at 13 times; ( Shareprice / ( operating cash flow – depreciation ) ) * 13 .
At a share price of 27,27 EUR; Rockwools fair value sits 24% above current levels at conservative base estimates.
Applying – Power in Global Value Chains [University Work]
“We define GVC governance as the actions, institutions and norms that shape the conditions for inclusion, exclusion and mode of participation in a value chain, which in turn determine the terms and location of value addition, distribution and capture” (Dallas et al., 2019).
Note this section focuses on verticals only.
Demonstrative power: This represents indirect, firm-to-firm influence where operational or product changes implicitly shape the value chain without explicit mandates. This analysis currently lacks the specific operational visibility into Rockwools supply chains to further analyse this.
Institutional power: This refers to the collective regulations that Rockwool’s stone wool products serve. Legal requirements for construction, fire safety, and energy efficiency make stone wool necessary for any contractor and thus any construction retailer. For intermediaries offering full solutions, they are legally compelled to offer stone wool. Furthermore, with an increasing focus on ESG and CSR, Rockwool’s inclination to electrify its coke smelters fits institutional power, as the company is preemptively adapting to anticipated CO2 taxation and tightening environmental mandates.
Constitutive power: This refers to the diffuse social and industry norms that affect markets without direct contractual mandates. For example, Rockwool is used by some customers as a generic synonym for stone wool. These unwritten insulation norms form implicit industry standards, clearly emphasized by the massive gap between stone wool adoption in the USA and Canada, where the latter culturally defaults to a much larger ratio of stone wool in its insulation projects (note the causality might be affected by other variables such as climate and regulation).
Bargaining power: Intermediaries such as Stark are able to bundle materials, providing a more comprehensive experience for contractors. This provides leverage over Rockwool in firm-to-firm price negotiations. However, this mechanism has a dual effect. Intermediaries rely on regional stone wool manufacturers to offer a full product mix; because stone wool is a light weight volumenous product, it is rarely transported far, limiting the intermediaries’ alternative supply options. Conversely, Rockwool relies on the intermediaries’ extensive supply chains and customer know-how, creating a structural mutual dependence.
Dyadic relations are affected by collective: diffuse, direct and collective power – and vice a versa. These powers do not exist in a vacum – they interact and spill over.
In extension to power in global value chains, the institutional – and constitutive power incentivices Rockwool to invest in electric melters and automation, in expectation of Co2 taxation and stricter industry standards.