TECNOGLASS INC. 
By 
A growth company:
Tecnoglass specializes in the production of insulated and intelligent glass solutions and has reported remarkable financial growth with a historical 2-years trailing revenue growth rate of 91%. This success is attributed to the post-pandemic economic recovery and the surge in the construction and renovation of single-family residential homes in the United States. As a result, the company has gained significant market share in this segment between 2020 and 2022, consistently exceeding analysts' expectations and prompting upward revisions of their stock price targets.
Serving the multi-family, single-family, and commercial end markets, Tecnoglass is the second largest glass fabricator serving the U.S. and the #1 architectural glass transformation business in Latin America. Its presence in the US has grown particularly in Miami where it has a based showroom and distribution center that serves as its primary hub for operations in North America. In recent years, its tailored, high-end products can be found on some of the world's most distinctive properties, and it has secured several high-profile contracts in Miami, including a $100 million deal to supply glass and aluminum curtain wall for the Miami World Center development.
President Joe Biden's ambition to invest in infrastructure, with a significant chunk devoted to the energy transition, has significantly improved the growth prospects for Tecnoglass. The redevelopment of wind farms, construction of rail lines, placement of electric vehicle charging stations, and improvement of inadequately insulated houses are all part of the $1.2 trillion investment plan. The company is well-positioned to gain from this financial assistance with its insulated and intelligent glass products.
The company sells its products under the Tecnoglass, ESWindows (mid-range glass facades and windows), and Alutions (solutions for aluminum extrusion to fulfill the product mix) brands. The group’s sales are divided into 2 businesses: Windows & Architectural Systems and Glass & Framing Components. Between 2021 and 2022, the sales increased by 53,35% and decreased by 6,08% respectively, especially in the US where it increased by 50,85% to represent 96,1% of the net sales.
In the upcoming years, analysts expect that its growth will continue to improve, with annual growth rates of about 20%. Its growth into high-demand areas, especially along the Gulf Coast (Texas, Louisiana, Mississippi, Alabama, and Florida), proves its adaptability in geographically diversifying and replicating the success it has attained in other states. Its income mix likewise reflects this diversification, with its main markets being concentrated in the commercial and residential real estate industries.
Good Pricing Power:
Because of its sophisticated technological skills in premium architectural glass, Tecnoglass enjoys a major pricing advantage. With the majority of its supply chain and sales channels under its control and only one joint venture with Saint-Gobain, the company's vertical integration is another significant advantage. This gives them the ability to provide goods more quickly than their rivals, even when the supply chain for raw materials is disrupted. This gives them a major competitive edge when prices are high.
The supply of building materials is cyclical and subject to downturns. Following the 2020 recession, the US housing market slowed down as home prices increased. Additionally, changes to the infrastructure bill's spending plan might be detrimental to the development of Tecnoglass. However, the company's outstanding management structure equips it to overcome any challenges that may arise.
Too perfect to be true?
There are various risk factors that could potentially impede the growth of Tecnoglass. These include economic downturns, intense competition, volatile raw material costs, and political instability. Given the group's reliance on the construction industry, any downturn in the economy could lead to a decrease in demand for construction materials, and in turn, impact the business’s performance. Furthermore, it operates in a highly competitive market (Assa Abloy, Builders Firstsource, Masco, Carlisle), with numerous firms offering similar products and services. As such, they face the risk of losing market share and experiencing lower profitability. The fluctuation and rising costs of raw materials are additional challenges that they must navigate. To remain competitive, it must keep its prices affordable, which can be difficult if raw material costs increase significantly. Finally, political instability in certain countries where it operates poses a risk to its operations and supply chain, which could be disrupted in the event of political unrest or violence.
Financial analysis
Tecnoglass has benefited from the renovation craze and has seen its capitalization rise by 539% since 2020. The stock is currently paying around 10 times earnings which makes it a rather attractive price with steadily increasing revenues that have risen by 91% between 2020 and 2022. Analysts are forecasting $919 million in revenues for 2025, an increase of 366% since 2014 (CAGR of 13,67%).
At the same time, the operating margin has risen above 30% (31,6% in 2022), the first time this has happened in 10 years, which shows the group's very good management. Tecnoglass also benefits from one of the highest net margins in the sector, at 21,7%. Above all, it has seen its net income soar by almost 2800% since 2017. Its earnings per share (EPS) have increased by 1950% over the same period. The ROA (Return on Asset) has grown between 2018 and 2022 from 6,75% to 23,9% and the ROE (Return on Equity) has doubled over the same period, from 25,6% to 53,5%. Furthermore, the EBITDA is growing, debts are decreasing, and financial leverage is under control, with a debt/EBITDA ratio of 0,25 in 2022.
The earnings release for the second quarter of 2023 should be good with an EBITDA of $72 million against $45,4 million for 2022 Q1 as well as the operating margin at 33,4% against 25,2% for the same period. Moreover, according to various analysts, earnings per share (EPS) should increase over the next three years. After having risen steadily to reach $3,28 in 2022, forecasts point to an EPS of $4,22 for 2024 and $4,56 for 2025.
As of today, the US construction industry continues to show robust growth, with the US Census Bureau reporting a 13.9% increase in new housing starts in March 2023 compared to the same period in the previous year. With its strong financials and sound management model, Tecnoglass could be a promising investment opportunity in the medium to long term to benefit from the renovation trend in the housing industry.
