“Freedom Insulation” update – A Deeper Dive & Top Down market estimate

Disclaimer: As I am an investor and not a Building & Construction specialist, this post might contain a lot of wrong or even misleading information. All I can say is that I do this on a “best effort” basis. DO YOUR OWN RESEARCH !!!!

Time flies. Already more than 7 Months ago, I introduced my “Freedom insulation” basket. Since then I had pruned the basket, mainly because of the contraction in the construction industry and currently I only hold Rockwool (1,1%), Sto (1%) and Recticel (0,6%). Back then, the underlying case for insulation was a very high level one, this time I want to dig a little deeper and substantiate it if possible.

Regulatory background:

Just a few weeks ago, the EU Parlament passed a quite impactful law, basically requiring the “energetic renovation” (and insulation) of old buildings within the next 4-10 years. The most important part is that for each EU country, the worst 15% of buildings must be thoroughly renovated by 2027 (commercial) and 2030 (residential), with even stricter rules after another 3 years.

As this is Europe, the details of this law now need to be discussed with each and every member country and for sure, there will be excemtoptions and delays, but the direction is clear: There will be a strong push towards renovations which in turn will require a lot of insulation. Naturally, with the Green Party in charge, Germany has passed already some laws that require property owners to do something quickly, like for instance baning Oil and gas heating from 2024

What happened to insulation stocks since then ?

Interestingly, this hasn’t helped insulation stocks at all, as the stock charts below show. Over 1 year, insulation stocks significantly underperformed the broad construction index, since my post in September performance was on average “in line” (yellow is Steico):

I have been thinking quite a bit of why that happened. My main explanation is that the Insulation players are potentially more energy intensive and maybe the market is fearing a harder hit on margins than for the big construction and building material companies.

Heating buildings is a large part of the Energy consumption

Total energy required to heat buildings accounts for 30-40% of ALL energy consumption in Germany (and Europe). In order to decarbonize the economy, this is one of the biggest areas to tackle. The building blocks in order to decarbonize buildings are simple:

  • use a different / more efficient /decarbonized heating system (e.g. heat pumps powered by renewable energy)
  • and use less overal energy by better insulating the building especially for older houses

Because of the Ukraine war, especially for Europe as second motivation has entered the picture: Suddeny the cost for (fossile) heating systems, especailly natural gas increased very much and will likely stay volatile and expensive due to the absence of Russian pipeline gas.

Another interesting aspect is that for instance heat pumps, which are currently favored by the German Government and many home owners, require very good insulation in order to be able to heat a home as heat pumps are only effective if they don’t have to heat the water to a very high temperature.

Some Energy efficiency basics: What measure generate what kind of energy savings ?

It is not easy to put hard numbers on what measure leads to what kind of energy savings, but from different sources, I have come to the following approx. savings (of total savings) for a residential dwelling (single house, semi-detached etc.).

~40% full outside insulation
~30% Change in heating system
~10-15% isolating upper ceailing (below roof)
~10-15% isolating lower floor (above basement)
~ 10% new windows

So depending on the object, insulation accounts of 60-70% of available energy savings or put it into other words: Despite the a lot of current “buzz” about heat pumps, the “unsexy” work horse of Energy efficiency, especially for existing buildings is insulation, there is absolutely no way around it.

Insulation Material basics:

Market shares Germany 2019 (all insulation, outside and inside)

“oil based” (Polystyrol, Polyurethane etc.): 48%
Fibre (Glass/Rock): 43%
“Nature based”: 9% (thereof 5% Wood)

Outside insulation: 85% Polistyrol

Rockwool – Medium thermal insulation, good sound isolation, fire resistant, relatively expensive, health risks for workers, not so easy to recycle

Glass wool – Medium thermal insulation, good sound isolation, fire resistant, less durable, relatively cheaper, health risks for workers, not so easy to recycle

Polystyrol – Very good thermal insulation, little sound insulation, not very fire resistant, very durable, relatively cheap, not so easy to recycle

Wood fiber – Medium Thermal insulation, good sound insultation, not very fire resistant, relatively expensive, easy to recycle, “sustainable”

So overall, there is no material that is “the best”. However, my own personal and unqualified assesment is that on the “lower end” of the market, people will mostly look for “bang for the buck”, i.e. cheap insulation that does the job, which would be Polystyrol. On the high end I guess that people would go for wood if possible, as this is “sustainable”.

Top down market growth estimate

One big question I asked myself is: How big is the opportunity for the players in the sector ? Will this increase sales by 10%, 20%, 50% or even 100% ? And for what period of time ?

Predictions are always diffciult (especially with regard to the future) but I came up with this “ballpark” estimate based on the EU law and the numbers I found for Germany:

For residential buildings, until 2030, the worst 15% of the existing buildings need to be renovated. Germany has around 40 mn “residential units”, this means that until 2030, ~6 mn units have to be renovated minus those that just got torn down plus those that get renovated that are not in the bottom 15% (because of a planned sale etc.). My assumption would be that this cancels out and 6 mn is the total number.

Normal renovation activity is around 0,5 mn renovations per year. At that pace, only ~3,5 mn units could be renovated. Assuming we have 7 years, the required renovation activity would need to be 6 mn / 7 years = 0,86 mn required renovations a year or ~+72% vs the current renovation activity.

If we further assume that the capacity ramp up will be possible over a few years, I came up with this “projection” to reach the target:

One could do any other projection but the 1 mn renovations per year is a goal that has been floated by several organizations already a few years ago.

So overall, I think a scenario where renovations double over a longer period in time vs the current level is not unrealistic. It could be that in other countries, the uptake will be slower, but oveall I think there is a massive growth opportunity in ront of the insualtion players.

From an Italian company with some exposure to insulation, Bifire SPA, I found this slide which estimates 2 mn renovations p.a. in Italy going forward:

This is clearly more aggressive than the 1 mn renovations I estimate for Germany, but it shows that also in other European countries, the situation is not that different and Italy also relied a lot on gas heating.

How about the expected contraction in the construction industry ?

To me, the potential effect of a slowing construction industry is not purely negative for the insulation players. All though I don’t have any hard number at the moments, the majority of the business for the insulation players relates to renovations and and not new construction. One even positive apect could actually be the availability of workers.

In the past, for instance in Germany, it was difficult to get anyone actually doing smaller renovations for private residential projects because there was so much new building activity. In the future, there could be a better availability and activity for renovation projects.

Interestingly, some of the insulation players are indeed quite optimistic for 2023 and beyond.

To be continued….

In the next post I will take a deeper lok into the relevant European players and how I position myself going forward.

Below are a few links that contain information that I have summarized above

Sto Investor presentation:

Pros & Cons of different types of insulation

Rockwool vs Polyurethane insulation

Aspekte von Dämmung


Dämmstoffe Liste Vor/NAchteile

Marktanteile Dämmstoffe 2019

Marktanteile Dämmstoffe 2020






  • Hi 007, thanks a lot for the effort you put into your research and the extra time to write that up and release to the public. Highly appreciated!

    I have a pretty decent knowledge of the Real Estate industry and would like to add a few points:

    – There is no regulation governing, or specific competence needed, to install insulation. Therefore the installers market is highly fragmented and price-competitive. Probably good for the manufacturers. Compare to for example the oligopoly of elevators, where regulation push up the profit margins
    – On the other hand, no one will ever see, experience or even touch the insulation except for the installer. As long as it meets the necessary energy requirements, price is the main factor. It’s obviously not so heavy to transport, so competition is regional rather than for example cement
    – There is no service business attached to insulation, as is the case with for example heat pumps or elevators
    – The change cycle is also very very long, so that the extra installed base doesn’t give much future revenues (in combo with aforementioned point). The wear and tear on insulation is minimal and it will probably last until the building is torn down. It’s really a one-off biz and long-term relies on new construction

    The comments above might also be the reason why the market isn’t valuing these companies as such high multiples, the long-term growth case is not there. However the short-term cash flows could be very interesting, as long as they are not squandered by bad capital allocation.

    • Thanks for the comment. I agree that Insulation is mostly a commodity business and quite capital intensive. However, if my assumtptions are right, then the increase in demand could lead to a significant profit increase for an extended period of time. If then the manufacturers all increase their capacity, then the cycle might turn.

  • I appreciate the writeup!

  • Themis Aristotelous

    Such a nice article to read, thanks.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.