Rockwool: Built for the Long Term

Rockwool is the world’s leading pure play producer of stone wool solutions and a global leader in insulation for energy efficient and fire safe buildings. Known for transforming volcanic rock into high performance insulation and specialty systems, the company combines deep expertise in stone wool with a vertically integrated and capital intensive manufacturing footprint spanning Europe, North America, and Asia. With strong structural growth drivers such as energy efficiency, urbanization, fire safety, and stricter building regulations, Rockwool continues to expand production capacity while strengthening its position across both renovation and new construction markets. The question remains: Does this global insulation leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Rockwool at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Rockwool, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Rockwool was founded in 1909 in Denmark and has grown into the world’s leading pure-play producer of stone wool solutions. The company transforms volcanic rock into high-performance stone wool products used across construction, industry, transportation, horticulture, and specialized industrial applications. Unlike diversified building material companies that operate across many product categories, Rockwool is fully dedicated to stone wool, allowing it to focus all of its research, operational expertise, and investments on continuously improving the material and expanding its range of applications. The company operates through two main segments: Insulation and Systems. The Insulation segment, which accounts for approximately 83% of revenue, includes products used in residential, commercial, and industrial buildings, including roof, façade, floor, and cavity wall insulation, HVAC systems, marine vessels, OEM applications, and passive fire protection. These solutions are primarily marketed under the ROCKWOOL brand and are designed to improve thermal efficiency, reduce energy consumption, enhance fire safety, and provide sound insulation. Rockwool’s insulation products can significantly reduce heating and cooling needs in buildings while also improving indoor comfort and lowering carbon emissions. The Systems segment, which represents approximately 17% of revenue, focuses on higher-value-added solutions through brands such as Rockfon, Rockpanel, and Grodan. Rockfon provides acoustic ceilings and wall systems designed to improve sound quality in environments such as schools, offices, hospitals, and commercial buildings, where poor acoustics can negatively impact learning and productivity. Rockpanel produces façade cladding materials that combine durability, ease of installation, weather resistance, and fire protection, while Grodan supplies stone wool-based growing substrates used in controlled environment agriculture, helping greenhouse operators improve yields while reducing water consumption. Through these specialized systems businesses, Rockwool expands beyond traditional insulation into adjacent markets where technical expertise and premium solutions support higher margins and customer value. The company sells its products in more than 120 countries primarily through B2B channels, including installers, contractors, distributors, OEM customers, and construction professionals. Revenue is geographically diversified, with Western Europe accounting for the majority of sales, followed by Eastern Europe, North America, and Asia. A key feature of Rockwool’s business model is its local manufacturing approach. Because insulation products are relatively expensive to transport due to their bulkiness and low value-to-weight ratio, the company manufactures products close to end markets through a network of approximately 40 factories worldwide. This localized production strategy improves service levels, reduces logistics costs, and creates a competitive advantage that can be difficult for smaller competitors to replicate. The business itself is characterized by relatively low-risk transactional sales, local customer relationships, and capital-intensive production. Rockwool combines large-scale manufacturing with deep technical expertise to deliver products that address some of society’s most pressing long-term challenges, including energy efficiency, urbanization, climate resilience, fire safety, and energy independence. Stone wool itself is particularly well positioned for these trends because it is naturally non-combustible, highly durable, recyclable, and effective at reducing energy consumption in buildings. As governments continue to tighten building regulations and prioritize decarbonization, Rockwool benefits from structural demand drivers tied to insulation retrofits, sustainable construction, and stricter fire safety standards. Sustainability is also deeply embedded in Rockwool’s strategy and product offering. Stone wool can be recycled repeatedly without losing performance characteristics, and the company’s products help reduce emissions by lowering heating and cooling requirements over the lifetime of buildings. Rockwool is increasingly investing in circularity, energy efficiency, and capacity expansion to support long-term demand growth while aligning with global sustainability objectives. Rockwool’s competitive moat is primarily built on its specialization in stone wool, vertically integrated and capital-intensive manufacturing footprint, technological know-how, global scale, and strong customer relationships. One of the company’s greatest competitive advantages is its position as a pure-play stone wool specialist. While many competitors operate diversified building material businesses, Rockwool focuses entirely on maximizing the performance and applications of stone wool. This singular focus allows the company to direct all research and development, engineering expertise, and capital expenditures toward improving manufacturing efficiency, product performance, and innovation. Over more than a century, Rockwool has developed proprietary manufacturing technologies, highly automated production systems, and deep material expertise that are difficult for competitors to replicate. Producing stone wool at scale is both technologically complex and highly capital intensive. Manufacturing requires specialized factories, significant energy infrastructure, advanced process engineering, and extensive operational expertise to consistently produce high-quality products. These characteristics create meaningful barriers to entry, as new competitors would need to invest billions of dollars and spend years building capabilities to compete effectively. Rockwool further strengthens this advantage through its global manufacturing footprint, which includes approximately 40 factories located close to key end markets. Because insulation is costly to transport over long distances, proximity to customers becomes an important competitive factor. Rockwool’s scale enables it to maintain efficient logistics, strong service levels, and reliable product availability, advantages that are particularly important in construction markets where delivery timing matters. The company also benefits from long-term relationships with installers, contractors, distributors, architects, and industrial customers. Building professionals often prefer suppliers with proven reliability, consistent quality, technical support, and broad product portfolios because failures in insulation or fire safety systems can carry significant consequences. Over time, these relationships create switching costs and reinforce customer loyalty. Rockwool’s strong portfolio of brands, including ROCKWOOL, Rockfon, Rockpanel, and Grodan, further strengthens its market position by serving specialized end markets with trusted premium solutions. In addition, the company benefits from powerful long-term industry trends that naturally reinforce its moat. Growing demand for energy-efficient buildings, increasingly strict building regulations, heightened awareness of fire safety, urbanization, and climate resilience all support the adoption of high-performance insulation and specialty stone wool solutions. Since stone wool products are naturally non-combustible, recyclable, durable, and energy efficient, Rockwool is particularly well positioned as governments, builders, and consumers increasingly prioritize sustainable and safer buildings.

Management

Jes Munk Hansen serves as the CEO of Rockwool, a role he assumed in 2024 after serving on the company’s board of directors for approximately a year. He brings more than two decades of international leadership experience across industrial and technology-focused companies, with deep expertise in energy efficiency, advanced manufacturing, and sustainability. His appointment reflects Rockwool’s continued focus on expanding its global leadership in stone wool solutions while benefiting from long term structural trends such as energy efficiency, fire safety, and sustainable construction. Prior to joining Rockwool, Jes Munk Hansen served as CEO of the Danish defense and aerospace company Terma, where he was responsible for strengthening the company’s technological capabilities and international positioning in a highly specialized and engineering-driven industry. Under his leadership, Terma expanded its role in advanced defense technologies while navigating increasingly complex global supply chains and geopolitical developments. The role provided Jes Munk Hansen with valuable experience in leading a capital intensive industrial company operating across multiple international markets. Before Terma, Jes Munk Hansen spent several years at Grundfos, one of the world’s leading manufacturers of energy efficient pump solutions. During his time there, he held senior leadership roles including leading the North American business for approximately five years. In this position, Jes Munk Hansen gained extensive experience managing large industrial operations, strengthening customer relationships, and driving growth in one of the company’s most important strategic markets. His experience at Grundfos also provided deep insight into solutions focused on energy efficiency and sustainability, themes that closely align with Rockwool’s mission and long term growth opportunities. Jes Munk Hansen also held leadership positions at OSRAM and LEDVANCE, where he gained experience in lighting and energy efficient technologies. These roles further strengthened his understanding of industrial innovation, global manufacturing, and products designed to improve energy performance. Across his career, Jes Munk Hansen has consistently worked in sectors where technology, efficiency, and sustainability are central to long term value creation. Jes Munk Hansen holds dual Danish and American citizenship. He earned a master’s degree from the University of Copenhagen and an MBA from London Business School. In addition to his role at Rockwool, Jes Munk Hansen serves as Vice Chairman of the Confederation of Danish Industry and sits on the board of WS Audiology. Throughout his career, he has built a reputation as a leader with a strong focus on operational execution, long term strategic development, and responsible growth. Since becoming CEO of Rockwool, Jes Munk Hansen has emphasized the importance of balancing strong financial performance with sustainability and operational excellence. Upon his appointment, Jes Munk Hansen stated, “Rockwool is a globally leading company, and that comes with significant responsibility. For me, it is important to demonstrate that energy efficiency, sustainability, and business results can align.” Having followed Rockwool throughout much of his professional career and previously serving on the company’s board, Jes Munk Hansen has highlighted both his respect for Rockwool’s legacy and his ambition to build on the company’s strong foundation of technological expertise, operational excellence, and market leadership. Given his deep experience leading international industrial businesses and his strong background in energy efficient technologies, Jes Munk Hansen appears well suited to guide Rockwool through its next phase of growth. His expertise in industrial operations, global manufacturing, and sustainability aligns closely with Rockwool’s ambition to expand its leadership position in energy efficient and fire safe building solutions while continuing to benefit from long term structural growth trends.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Rockwool has historically maintained a strong ROIC, consistently generating returns above 10% in every year since 2016 and reaching a peak of 17% in 2024. This is particularly impressive given that Rockwool operates in a highly capital intensive industry where maintaining high returns can be challenging due to the significant investments required in factories, energy infrastructure, and production equipment. The company’s ability to consistently generate high returns on capital suggests that Rockwool possesses meaningful competitive advantages and disciplined capital allocation. Management itself places considerable emphasis on ROIC and frequently discusses it in earnings calls and annual reports. I personally like when companies focus on ROIC because it signals an emphasis on efficient capital allocation and long term value creation rather than simply pursuing growth for growth’s sake. Several structural characteristics explain why Rockwool has historically generated high returns on invested capital. First, Rockwool benefits from its position as the world’s leading pure play producer of stone wool insulation. The company’s singular focus on stone wool has allowed it to develop deep technical expertise, highly efficient production processes, and proprietary manufacturing know how over more than a century. Because stone wool production is technologically complex and capital intensive, barriers to entry are high, allowing established players like Rockwool to maintain attractive profitability. Competitors cannot easily replicate decades of manufacturing expertise or build large scale factory networks without committing substantial capital and time. Second, Rockwool benefits from economies of scale and local production advantages. The company operates approximately 40 factories globally, producing insulation close to customers because transporting insulation products over long distances is often uneconomical due to their low value to weight ratio. This localized production model improves customer service, lowers logistics costs, and creates an efficient operating footprint that smaller competitors struggle to match. Scale also strengthens purchasing power, production efficiency, and operational leverage, all of which support higher margins and stronger returns on invested capital. Third, Rockwool benefits from long term structural demand drivers that support pricing power and utilization rates. Energy efficiency requirements, stricter building regulations, urbanization, fire safety concerns, and climate resilience all increase demand for high performance insulation. Rockwool’s products are particularly well positioned because stone wool is naturally fire safe, recyclable, durable, and highly energy efficient. This combination of attractive product characteristics allows the company to command premium pricing in many applications while maintaining strong customer relationships with installers, contractors, and distributors. The increase in ROIC in 2024 to 17% was primarily driven by stronger profitability. Management highlighted effective cost control, productivity improvements, and lower energy costs as key contributors. This is especially noteworthy because the performance occurred while Rockwool continued investing heavily in additional production capacity and sustainability initiatives. In other words, the company achieved record returns despite expanding its asset base, highlighting the strength of the underlying business model. ROIC declined to 14.7% in 2025, though the underlying picture appears stronger than the headline number initially suggests. Part of the decline was driven by lower earnings and a higher invested capital base as Rockwool continued to invest in future growth through new factories and capacity expansion. However, the Russian business also distorted the comparison. Management noted that excluding the value adjustment related to Russian assets, ROIC would have remained approximately 19%, meaning the core business actually improved relative to 2024. The impairment of Russian assets negatively affected earnings while ongoing capital expenditures increased invested capital, creating a temporary headwind to reported returns. As a result, the lower ROIC in 2025 does not appear to reflect a structural deterioration in Rockwool’s competitive position or operational performance. Management’s capital allocation discipline also provides confidence that strong returns can continue. On earnings calls, management has explained that capacity related investments generally require a pretax ROIC threshold of approximately 15%, while sustainability projects are evaluated based on payback periods of up to eight years. Maintenance investments typically have much shorter payback periods. This disciplined approach suggests that Rockwool is selective about where it allocates capital and prioritizes projects capable of generating attractive returns over time. Looking ahead, I believe Rockwool should be able to maintain ROIC above 10%, although it may fluctuate depending on the construction cycle, energy costs, and the timing of large capacity investments. The company’s business is naturally more cyclical than software or branded consumer businesses because demand is tied to construction activity. Periods of weak residential or commercial construction may temporarily pressure margins and reduce factory utilization, which could weigh on returns. At the same time, Rockwool is in a period of elevated investment, with several new factories planned in markets such as the United States, Sweden, France, India, and the United Kingdom. These investments will initially increase invested capital before contributing meaningfully to earnings, which may temporarily suppress ROIC. However, the key structural drivers of high returns remain firmly in place. Rockwool continues to benefit from strong market leadership in stone wool, significant barriers to entry, local manufacturing advantages, and powerful long term demand drivers linked to energy efficiency and fire safety. As new factories mature and utilization improves, these investments should gradually become accretive to returns. Combined with management’s clear focus on disciplined capital allocation and minimum return thresholds, I believe Rockwool is well positioned to continue generating ROIC comfortably above 10% over the long term, even if annual results fluctuate somewhat due to cyclical or temporary factors.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Rockwool has historically delivered very strong and consistent equity growth. Since 2016, equity has increased in nearly every year, growing from approximately DKK 11,4 billion to DKK 20,5 billion in 2025, despite a few temporary setbacks along the way. The company only experienced meaningful declines in 2020 and 2025, both of which appear to be linked to extraordinary external events rather than structural weakness in the underlying business. This consistency is encouraging because it suggests Rockwool has been able to steadily compound shareholder value over time. One of the main reasons Rockwool has historically grown equity is its ability to generate consistently strong profitability and reinvest earnings at attractive returns. As discussed in the ROIC section, Rockwool has maintained returns on invested capital comfortably above 10% for most of the past decade. When a company consistently earns high returns on capital and reinvests profits into projects that generate similarly attractive returns, equity tends to compound over time. Rockwool’s investments in additional production capacity, productivity improvements, sustainability initiatives, and product innovation have generally strengthened the business while also supporting long term earnings growth. This disciplined reinvestment strategy helps explain why equity has increased steadily for much of the decade. The decline in equity during 2020 was largely related to the disruptions caused by the pandemic. Construction activity slowed in certain markets, uncertainty increased, and profitability temporarily weakened, which weighed on retained earnings. However, Rockwool recovered quickly, and equity resumed its upward trajectory already in 2021, increasing by more than 14%. This relatively fast recovery highlights the resilience of Rockwool’s business model and the essential nature of many of its products tied to energy efficiency and building safety. The decline in 2025 appears to be more of a special situation than a sign of deteriorating fundamentals. Rockwool reported a negative equity growth of approximately 11%, but this was heavily influenced by the company’s Russian assets and the loss of approximately DKK 1,8 billion in cash tied to the Russian business. Management specifically highlighted that Rockwool remains financially robust and maintains a strong financial position despite these losses. In other words, the decline in equity does not appear to reflect operational weakness in the core business but rather an accounting and geopolitical impact tied to Russia. Excluding this extraordinary event, equity growth would likely have looked materially stronger. Another important point is that Rockwool operates in a capital intensive industry. Unlike asset light businesses that can return most of their cash to shareholders, Rockwool regularly reinvests significant amounts into factories, production upgrades, automation, and sustainability initiatives. In 2025 alone, the company invested heavily in new production capacity and approved additional factories in markets such as the United States, Sweden, France, India, and the United Kingdom. While these investments increase the capital base in the short term, they are designed to support future growth and strengthen the company’s competitive position over time. Because Rockwool has historically generated attractive returns on these investments, reinvestment into the business has generally translated into higher shareholder value. Looking ahead, I believe Rockwool should continue growing equity over time, although annual fluctuations are likely. The business is exposed to cyclical construction markets, meaning profitability may occasionally weaken during economic slowdowns. In addition, large investments in new capacity may temporarily weigh on returns before new factories mature. However, the structural drivers behind Rockwool’s business remain favorable. Demand for energy efficient buildings, stricter fire safety standards, urbanization, and sustainability should continue supporting long term growth. Combined with management’s disciplined capital allocation and historically strong ROIC, I believe Rockwool remains well positioned to continue compounding shareholder value over the long term, even if certain years are affected by temporary or extraordinary events.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Rockwool has historically generated positive free cash flow in every year over the past decade, though the level has been somewhat volatile. This volatility is not surprising given the company’s capital intensive business model and exposure to cyclical construction markets. Encouragingly, free cash flow has generally trended upward over time, with 2023 and 2024 representing particularly strong years. In 2024, Rockwool generated its highest free cash flow ever at approximately DKK 3,3 billion while also delivering its strongest levered free cash flow margin of the decade at 11,4%. This performance is especially impressive considering that the company continued investing heavily in new production capacity and sustainability initiatives during the period. Several structural characteristics explain why Rockwool has historically generated solid free cash flow despite operating in a capital intensive industry. First, the company benefits from strong profitability driven by its leading market position in stone wool insulation and specialty systems. Rockwool’s products address mission critical needs such as energy efficiency, fire safety, and acoustic performance, allowing the company to maintain attractive margins even during periods of slower construction activity. The company’s technical expertise, strong brands, and local manufacturing footprint also support pricing power and efficient operations. Second, Rockwool benefits from economies of scale and disciplined capital allocation. While the business requires substantial investments in factories and production lines, management is highly selective about where capital is deployed. As discussed in the ROIC section, Rockwool targets approximately 15% pretax return on invested capital for capacity related investments and uses strict payback requirements for sustainability and maintenance spending. This focus on disciplined investment helps ensure that capital expenditures generate attractive long term returns rather than simply supporting growth at any cost. Third, Rockwool has improved its operational efficiency over time. Management has invested heavily in automation, digitalization, and what it refers to as the “Factory of the Future” initiative, which focuses on improving productivity and lowering operating costs. Investments in modern sales tools and digital capabilities are also intended to strengthen competitiveness and improve efficiency over time. These initiatives have helped support stronger profitability and cash generation, particularly in recent years. The strong free cash flow in 2023 and 2024 was primarily driven by higher profitability, improved productivity, and more favorable energy costs. During this period, Rockwool benefited from strong operating leverage while maintaining healthy demand across several markets. At the same time, capital expenditures remained manageable relative to cash generation, allowing a larger portion of earnings to convert into free cash flow. The result was a meaningful increase in both free cash flow and free cash flow margins. Free cash flow declined significantly in 2025, falling to approximately DKK 1,1 billion and reducing the levered free cash flow margin to 3.8%. While the decline may appear concerning at first glance, it was largely driven by temporary factors rather than a structural deterioration in the business. Management highlighted three primary reasons for the weaker performance: lower earnings, more cash tied up in the day to day running of the business, and significantly higher capital expenditures. Cash generation from operations declined due to weaker profitability, which was impacted by factors such as the factory accident in Switzerland, slower demand in certain markets, and the temporary closure of factories. At the same time, Rockwool had more cash tied up in items such as inventory and timing differences related to payments from customers and suppliers, which reduced cash generation in the short term. Higher capital expenditures also played a major role. Rockwool increased capital expenditures by approximately DKK 640 million in 2025 as the company accelerated investments in future growth. Major spending included new factories in the United States and India, a new production line in Romania, electrical conversions in the Netherlands and France, and continued investments in digitalization initiatives. These projects are intended to strengthen Rockwool’s long term competitive position but temporarily reduce free cash flow while factories are still under construction and not yet contributing meaningfully to earnings. Looking ahead, I expect Rockwool to remain a solid generator of free cash flow, though likely with more volatility than highly asset light businesses. Management has made it clear that capital expenditures will remain elevated for several years as Rockwool builds multiple new factories and continues investing heavily in sustainability, productivity improvements, and digitalization. The company itself has acknowledged that these projects require substantial spending upfront and that it can take four to five years before new factories meaningfully contribute to profitability. This means free cash flow may remain somewhat pressured in the near term. However, the long term outlook remains attractive. The key drivers of Rockwool’s business remain firmly in place, including stricter energy efficiency standards, growing demand for fire safe buildings, urbanization, and sustainability trends. As newly built factories mature and utilization improves, these investments should gradually support stronger profitability and cash generation. Combined with disciplined capital allocation and strong market leadership, Rockwool appears well positioned to continue generating attractive free cash flow over the long term, even if annual results fluctuate during periods of elevated investment. Rockwool primarily uses its free cash flow in three ways. First, the company reinvests heavily into growing and strengthening the business through new factories, productivity improvements, sustainability initiatives, and digitalization programs. Second, Rockwool returns cash to shareholders through dividends. Management maintains a policy of distributing at least one third of net profit through dividends, and the company recently increased its dividend significantly. Third, Rockwool has increasingly begun returning excess cash through share buybacks. While historically less active on repurchases, management now uses buybacks as an additional tool to return excess capital to shareholders when appropriate. In 2025, Rockwool spent approximately DKK 1,1 billion on share repurchases while also paying meaningful dividends, showing an increasing willingness to reward shareholders alongside continued reinvestment in long term growth. The free cash flow yield suggests that Rockwool is currently trading at a premium valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can realistically be repaid within a three year period, calculated by dividing total long term debt by earnings. Upon analyzing Rockwool’s financials, the company currently carries 1,4 years of earnings in long term debt, which is well below my threshold of three years and therefore not concerning. It is also important to note that these numbers include the significant write down related to Rockwool’s Russian assets, which materially reduced reported earnings in 2025. Excluding the Russian write down, the debt to earnings ratio would have been approximately 0.1 years, highlighting just how strong Rockwool’s financial position actually is. Historically, Rockwool has maintained very low debt levels relative to earnings, often close to zero for more than a decade. This reflects a business that generates solid cash flow and has generally funded growth from internally generated cash rather than relying heavily on borrowing. Even though Rockwool is currently investing heavily in new factories, digitalization, and sustainability initiatives, management has stated that it remains committed to maintaining a conservative balance sheet and expects leverage to stay below one times EBITDA. In simple terms, this means management does not intend to take on excessive debt despite the elevated investment period. Combined with Rockwool’s strong cash generation and disciplined capital allocation, I do not see debt becoming a meaningful concern in the foreseeable future.

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Risks

The energy-intensive manufacturing process is a risk for Rockwool because producing stone wool requires extremely high temperatures of more than 1,500°C, making energy one of the company’s most important input costs. Energy and raw materials combined account for roughly half of Rockwool’s total input costs, meaning changes in energy prices can have a meaningful impact on profitability. While Rockwool’s products are essential for improving energy efficiency in buildings, the production process itself is highly energy intensive. This creates an inherent challenge where the company benefits from sustainability trends on the demand side while also facing significant operational exposure to energy markets. Rockwool primarily relies on foundry coke as its main energy source, supplemented by electricity and natural gas depending on the factory and region. Coke is particularly important because it provides the very high and stable temperatures needed for stone wool production. However, coke is also carbon intensive and increasingly exposed to environmental scrutiny. Governments, particularly in Europe, continue tightening climate regulations through mechanisms such as carbon taxes, emissions trading systems, and stricter environmental standards. As a result, Rockwool faces the risk that future regulation could increase the cost of producing stone wool or require faster investment in cleaner alternatives. If carbon pricing rises materially or restrictions on coke usage become more aggressive, production costs could increase and pressure margins. Another challenge is the company’s ongoing transition toward lower carbon manufacturing. Rockwool has already begun converting some factories from coke to natural gas and electricity as part of its long term sustainability strategy. While this transition may strengthen the company’s competitive position over time and reduce environmental risk, it also creates short term challenges. Existing production assets built around coke may become obsolete faster than expected, increasing the risk of higher depreciation costs or stranded assets. In simple terms, Rockwool may need to replace parts of its manufacturing infrastructure earlier than originally planned, requiring additional investments that weigh on profitability and free cash flow. The transition itself is also expensive and operationally complex. Rockwool has committed to investing at least EUR 100 million annually in sustainability related initiatives for several years, much of which includes factory conversions and energy efficiency improvements. At the same time, access to affordable and reliable electricity is not consistent across all markets. In parts of Europe, electricity grids face capacity constraints, energy prices can be volatile, and access to sufficient green electricity remains limited. If infrastructure limitations delay factory conversions or electricity costs remain elevated, Rockwool could face higher operating costs than expected. Energy price volatility itself also remains an ongoing risk. This became especially visible during the European energy crisis following Russia’s invasion of Ukraine, when industrial energy prices increased sharply. Although Rockwool was able to offset some of these pressures through pricing actions and operational improvements, periods of elevated energy costs can temporarily pressure margins if costs rise faster than the company can pass them on to customers. Because construction markets can already be cyclical, rising input costs during weaker demand periods may create additional pressure on profitability.

Macroeconomic factors are a risk for Rockwool because the company is heavily dependent on global construction and renovation activity, both of which are highly influenced by economic conditions, interest rates, inflation, geopolitical developments, and business confidence. While insulation products are essential for energy efficiency and fire safety, demand for these products is still closely tied to the willingness of developers, businesses, and homeowners to begin new projects or renovate existing buildings. During periods of economic uncertainty, construction activity often slows as companies and consumers delay investments, which can reduce demand for Rockwool’s products. This dynamic became particularly visible in 2025, when Rockwool described market conditions as very challenging. Construction activity in Europe remained weak, while important markets such as Germany, France, the United Kingdom, parts of Eastern Europe, and Canada experienced softer demand. Many construction and renovation projects were either postponed or cancelled as geopolitical uncertainty, inflation, higher financing costs, and weaker business sentiment reduced the appetite for investment. Because insulation demand often follows overall construction activity, weaker building markets can directly affect Rockwool’s sales volumes and factory utilization. One important macroeconomic risk is prolonged weakness in Europe, which remains Rockwool’s largest market and accounts for the majority of revenue. Europe has experienced uneven economic conditions in recent years, with Southern European countries such as Spain, Italy, and Romania showing relatively healthy activity levels, while larger markets such as Germany and France have remained weak. Germany in particular has struggled with sluggish economic growth, lower industrial activity, and delays in government supported construction initiatives. Since Germany has historically acted as an economic engine for Europe, prolonged weakness there can affect construction activity across the broader region. The war in Ukraine also continues to weigh on confidence and investment in parts of Europe, especially Eastern Europe. North America presents a somewhat different but equally important challenge. While the United States continues to offer long term growth opportunities for Rockwool, Canada has faced significant pressure due to weaker construction activity and uncertainty surrounding trade relations with the United States. Management specifically highlighted that tariff policies and political uncertainty have negatively affected important Canadian markets, particularly Ontario, which had previously benefited from investment in sectors such as automotive manufacturing and data centers. Although some regions such as Quebec have shown resilience, overall activity remains subdued. Continued geopolitical tensions or changes in trade policy could further weaken investment appetite in both Canada and parts of North America. Inflation and energy prices also represent important macroeconomic risks. Rising inflation increases costs for developers, contractors, and homeowners, which can discourage construction activity and delay renovation projects. At the same time, higher energy costs can pressure profitability for Rockwool itself due to its energy intensive production process. Management has already warned that higher inflation and energy prices in 2026 may create additional restraint in construction markets, particularly in parts of Europe and Canada where demand is already under pressure. Interest rates are another important factor. Construction and real estate projects are often financed with debt, meaning higher interest rates increase borrowing costs for developers and property owners. When financing becomes more expensive, projects may become less attractive economically and can therefore be delayed or cancelled. This is particularly relevant for residential construction, which tends to be highly sensitive to mortgage rates and housing affordability. Geopolitical uncertainty adds another layer of risk. Escalating tensions between Europe and the United States, trade disputes, or prolonged regional conflicts could negatively affect economic activity and reduce confidence among developers and investors. Rockwool itself has highlighted concerns that geopolitical uncertainty has already contributed to weaker activity in certain markets and could continue to reduce appetite for large building projects in both Europe and North America.

The uncertainty regarding its Russian assets is a risk for Rockwool because the company no longer has operational control over four factories in Russia despite still formally owning them. On January 13, 2026, Russian authorities placed Rockwool’s subsidiaries under external administration through a government decree, effectively taking control of the business. As a result, Rockwool wrote down the full value of its Russian operations to zero in 2025, corresponding to approximately DKK 2.9 billion. While the accounting impact is already reflected in the financial statements, uncertainty remains around whether Rockwool will ever regain control of the factories, recover compensation, or permanently lose the economic value tied to these assets. One of the key risks is that the situation remains highly unpredictable and largely outside of Rockwool’s control. Management has emphasized that the takeover represents what it considers a clear breach of international agreements and has stated that legal efforts are underway to protect ownership rights. However, management has also acknowledged that recovering control may prove difficult. In comparable situations involving foreign companies operating in Russia, external administration has sometimes remained in place for several years. Because it remains unclear if or when the administration will end, Rockwool faces prolonged uncertainty regarding both the financial value and strategic implications of its former Russian business. Another important risk relates to lost earnings and cash flow. Prior to the takeover, the Russian operations had been profitable and generated meaningful earnings for Rockwool. In 2025 alone, the Russian business contributed approximately EUR 78 million in EBIT before the write down. In addition, Rockwool held substantial cash balances in Russia that benefited from high local interest rates. Much of this cash is now restricted, and management highlighted that approximately EUR 243 million in cash tied to the Russian operations was effectively lost as part of the broader impairment. This not only reduced profitability in 2025 but also weakened Rockwool’s financial position, shifting the company from a net cash position to modest net debt. There is also a reputational and brand related risk. Rockwool has spent decades building its reputation around quality, reliability, and sustainability. Because the Russian factories still technically produce stone wool products associated with the Rockwool brand, there is a risk that products manufactured under external administration may not meet the same quality standards or operational controls that Rockwool historically enforced. Since Rockwool no longer controls day to day operations, the company has limited visibility into how the factories are being run. Any decline in product quality or inappropriate use of the brand could potentially damage Rockwool’s reputation in certain markets. A further risk is the possibility that the Russian factories eventually become competitors. Although European Union sanctions currently restrict exports into the EU, management acknowledged that products from the Russian factories could theoretically compete with Rockwool in markets outside Europe. While insulation products are expensive to transport long distances, meaning this risk may be limited geographically, it still introduces uncertainty. In theory, factories originally built and optimized by Rockwool could eventually supply nearby international markets and compete against the company’s own products without Rockwool benefiting economically.

Reasons to invest

Energy efficiency is a reason to invest in Rockwool because it represents one of the company’s strongest and most durable long term growth drivers. Buildings account for nearly one third of global energy consumption and energy related CO₂ emissions, making them one of the largest areas of focus in efforts to reduce emissions, lower energy demand, and improve energy security. Proper insulation is widely considered one of the fastest and most cost effective ways to reduce energy consumption in buildings. Rockwool’s stone wool insulation can reduce a building’s heating needs by up to 70%, positioning the company as a key enabler of global efforts to improve energy efficiency and reduce emissions. Because of this, demand for Rockwool’s products is supported not only by traditional construction activity but also by long term structural trends tied to climate policy, energy independence, and renovation needs. One of the biggest opportunities for Rockwool lies in Europe, where a large share of the building stock remains energy inefficient. Approximately 75% of buildings in Europe are estimated to be inefficient from an energy perspective, creating a substantial need for renovation and modernization. To address this issue, the European Union has introduced the Energy Performance of Buildings Directive, also known as the EPBD, which aims to improve building standards and accelerate renovations across member states. The directive requires countries to implement stronger energy performance standards and improve insulation in both residential and commercial buildings. Management has repeatedly highlighted the EPBD as one of the most important long term growth opportunities for Rockwool and expects it to drive a wave of renovation projects in the years ahead. Because Rockwool’s insulation products directly improve energy performance while also providing fire safety benefits, the company is particularly well positioned to benefit from these changes. Importantly, energy efficiency is increasingly viewed as more than just a climate issue. Following the energy crisis in Europe and concerns around dependence on Russian gas, policymakers have placed greater emphasis on energy security and self sufficiency. Rockwool has highlighted that improving insulation in buildings is one of the fastest and cheapest ways for Europe to reduce dependence on imported energy. Better insulated buildings consume less energy, lowering heating costs and reducing vulnerability to volatile energy markets. This broader shift in thinking is important because it expands the number of reasons governments and consumers may prioritize insulation investments. In other words, even if climate policies become less politically popular, energy efficiency may still remain a priority because it supports affordability, competitiveness, and national energy security. The economics of insulation further strengthen the investment case. Compared to many other climate related investments, upgrading insulation is often relatively inexpensive while generating immediate and measurable savings. Lower heating and cooling costs improve affordability for homeowners and businesses, while energy efficient buildings are generally more comfortable, healthier, and more resilient to extreme weather. Rockwool also highlights that its products save nearly 100 times more energy over their lifetime than what is consumed during production. This creates a compelling value proposition that supports long term demand regardless of short term economic conditions. The opportunity is not limited to Europe. Governments around the world are tightening energy efficiency standards and introducing incentives to improve building performance. Countries across North America, Asia, and other regions increasingly recognize that reducing building energy consumption is critical for lowering emissions, strengthening energy security, and managing growing electricity demand. This expands Rockwool’s addressable market globally and reduces reliance on any single geography.

Expanding capacity is a reason to invest in Rockwool because it reflects management’s confidence in long term demand growth and positions the company to capture additional market share across several attractive regions. Rockwool operates in a business where manufacturing capacity is both capital intensive and highly localized. Because insulation products are expensive to transport over long distances relative to their value, production must generally be located close to end markets. This creates meaningful barriers to entry and means that adding capacity in the right regions can support profitable long term growth. By investing ahead of demand, Rockwool increases its ability to serve customers, strengthen local market positions, and benefit from structural trends such as energy efficiency, urbanization, fire safety, and sustainable construction. One of the strongest signals of opportunity is the scale of Rockwool’s planned investments. The company currently has seven factory projects underway or approved, including facilities in Europe, India, and North America. Major investments in 2026 include capacity expansions in India, Romania, and the United States, while management is also acquiring land for future manufacturing sites. In Europe, the company recently resumed its French factory project in Soissons following approval of the building permit. These investments suggest that Rockwool sees demand growth extending far beyond short term economic cycles and is willing to commit significant capital to support future expansion. Importantly, management has emphasized that these investments are not solely dependent on optimistic assumptions around Europe’s renovation wave or regulatory changes. Instead, factory expansions are based on what management sees as underlying increases in demand that already justify additional capacity. In other words, even before potential benefits from the European renovation wave or stricter energy efficiency legislation fully materialize, Rockwool already sees enough market demand to support expansion. This conservative approach reduces the risk that the company is overbuilding based on overly optimistic assumptions. The United States represents one of the most attractive growth opportunities. Rockwool has highlighted strong demand in North America and is building a new factory in Washington state to support growth on the West Coast, particularly in markets such as California. The company also continues expanding technical insulation capacity in Mississippi. India also represents an important growth market. Management has described the company as effectively being in a sold out situation in parts of the country, meaning existing production capacity is insufficient to meet demand. Rockwool’s new factory in Chennai is expected to open soon, and management has already indicated that additional capacity may eventually be required. India benefits from long term trends such as urbanization, rising living standards, industrial development, and growing demand for energy efficient buildings, making it a potentially attractive market for decades to come. The economics of new capacity also appear attractive. Management targets approximately 15% pretax return on invested capital for capacity related investments, suggesting projects are expected to generate meaningful returns over time. Rockwool has noted that a single large factory with approximately 100.000 tonnes of annual capacity could generate between EUR 140 million and EUR 160 million in revenue, illustrating the scale of opportunity when new facilities reach mature utilization levels. While factories require large upfront investments and several years before contributing fully to profitability, they can become highly attractive assets once operating at scale. Capacity expansion is also about improving operational quality and efficiency, not just increasing production. New factories are being designed with modern technologies, improved automation, and more sustainable production methods in mind. Rockwool is increasingly integrating electrification into new facilities as part of its long term effort to reduce reliance on carbon intensive energy sources such as foundry coke. Newer facilities are also expected to be more productive and energy efficient than older factories, helping strengthen margins and support long term competitiveness.

Growing in the U.S. market is a reason to invest in Rockwool because North America represents one of the company’s largest long term growth opportunities and offers a substantial runway for market share gains. Unlike many of Rockwool’s European markets, where stone wool insulation already holds meaningful market share, the U.S. insulation market remains relatively underpenetrated. Historically, the American market has been dominated by plastic foam and glass fiber insulation, leaving stone wool with only a small share of the overall market. This creates an attractive opportunity for Rockwool because future growth does not need to rely solely on higher construction activity. Instead, much of the opportunity comes from converting existing demand away from competing insulation categories toward stone wool. One of the key reasons Rockwool believes the U.S. market is attractive is the increasing appreciation for the performance advantages of stone wool. Compared to many traditional insulation materials, stone wool offers superior fire resistance, thermal performance, acoustic properties, durability, and recyclability. In particular, fire safety has become an increasingly important consideration in the United States, especially following several high profile fire incidents and growing awareness around building safety. Because stone wool is non combustible, it aligns well with tightening building standards and stricter fire regulations. As builders, architects, and regulators increasingly prioritize fire safe and sustainable buildings, Rockwool’s products become more relevant. Importantly, management views the U.S. opportunity as largely independent of short term construction cycles. Because stone wool currently has only a few percentage points of market share in the United States, Rockwool believes growth will primarily come from replacing competing insulation materials rather than depending entirely on overall market growth. This means the company may still be able to grow even during periods where broader construction activity is softer. In other words, Rockwool is not simply tied to whether more buildings are being constructed, but also to whether customers increasingly choose stone wool instead of glass or foam insulation. Another reason the U.S. market is attractive is its pricing environment. Management has highlighted that the U.S. building materials industry tends to be more rational when it comes to pricing compared to Europe, which is often more fragmented and competitive. This means companies are generally better able to implement price increases and maintain profitability. As a result, North America is not only a volume growth opportunity but also an attractive profitability driver for Rockwool. Higher margins combined with increasing market share could make the region an increasingly important contributor to earnings over time. Distribution expansion is another important growth driver. Rockwool is already present in major retail chains such as Home Depot and Lowe’s, giving the company access to homeowners and contractors across much of the country. However, management believes there is still meaningful room to expand wholesale distribution channels, particularly in regions where Rockwool has historically had limited presence. Improving product availability and strengthening relationships with distributors should help accelerate market share gains over time. The supply and demand dynamics in North America also appear favorable. Management expects demand to continue exceeding available stone wool capacity in the region until at least 2028. This suggests that Rockwool is currently operating in a favorable market environment where demand remains stronger than supply, supporting both volume growth and pricing power. At the same time, the relatively small size of the stone wool industry in the United States means there is substantial room for future expansion as awareness and adoption increase.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 9,60, which is the adjusted EPS from 2025. I have selected a projected future EPS growth rate of 8%. Finbox expects EPS to grow by 8% over the next five years. Additionally, I have selected a projected future P/E ratio of 16, which is twice the growth rate. This decision is based on Rockwool's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 81,97. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Rockwool at a price of DKK 40,98 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 4.554, and maintenance capital expenditures were 1.652. The tax provision was 1.232. We have 207,2 outstanding shares. Hence, the calculation will be as follows: (4.554 – 1.652 + 1.232) / 207,2 x 10 = DKK 199,52 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Rockwool's Free Cash Flow Per Share at DKK 5,37 and a growth rate of 8%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 61,69.

Conclusion

I believe Rockwool is an intriguing company with strong management. The company has built its moat through its specialization in stone wool, vertically integrated and capital intensive manufacturing footprint, technological know how, global scale, and strong customer relationships. Rockwool has consistently achieved a high ROIC, which I expect will continue over the long term due to favorable structural growth drivers and disciplined capital allocation. While free cash flow decreased in 2025 as capital expenditures continued to rise, this was largely due to significant investments in future growth, and I expect free cash flow to increase over time as new factories mature and begin contributing more meaningfully to earnings. The energy intensive manufacturing process is a risk for Rockwool because producing stone wool requires very high temperatures, making energy and raw materials roughly half of the company’s input costs. As a result, higher energy prices, stricter environmental regulation, or delays in transitioning away from carbon intensive energy sources such as foundry coke could increase costs, pressure margins, and require significant additional investments. Macroeconomic factors are also a risk because demand for Rockwool’s products depends heavily on construction and renovation activity, which is influenced by economic growth, interest rates, inflation, and geopolitical uncertainty. During weaker economic periods, higher financing costs and lower business confidence can delay building projects and renovations, reducing demand for insulation products and pressuring sales volumes and profitability. The uncertainty regarding Rockwool’s Russian assets is another risk because the company no longer controls four factories in Russia despite still formally owning them, creating uncertainty around whether it will ever regain the assets or receive compensation. In addition to the DKK 2,9 billion write down and lost cash tied to the business, there is also a risk that the factories could eventually compete with Rockwool in certain markets or affect the company’s brand if products no longer meet Rockwool’s quality standards. On the other hand, energy efficiency is one of the strongest reasons to invest in Rockwool because improving building insulation is one of the fastest and most cost effective ways to reduce energy consumption, and Rockwool’s stone wool products can lower heating needs by up to 70%. As governments increasingly prioritize energy efficiency, energy security, and building renovations through stricter regulations and incentives, Rockwool appears well positioned to benefit from strong long term demand across Europe, North America, and other global markets. Expanding capacity is another reason to invest because it positions the company to capture growing demand and gain market share in attractive regions such as the United States, India, and Europe. Management’s willingness to invest heavily in new factories while targeting attractive returns on capital reflects confidence in long term structural growth drivers such as energy efficiency, urbanization, and stricter building standards, while newer facilities should also improve productivity and strengthen competitiveness over time. Growing in the U.S. market is also an attractive opportunity because Rockwool still has a very small market share in a large insulation market that is increasingly shifting toward stone wool due to its superior fire safety, energy efficiency, and sustainability benefits. As awareness grows, distribution expands, and demand continues to exceed supply, Rockwool appears well positioned to gain market share and drive profitable long term growth in North America. Overall, I believe there are many things to like about Rockwool, and buying shares below the Ten Cap price of DKK 199 could potentially be an attractive long term investment.

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