SigmaRoc (SRC:51p), a company pursuing a buy-and-build strategy in the heavy building materials sector, is navigating the Covid-19 crisis far better than analysts had predicted, prompting a round of earnings upgrades following a robust set of interim results. I flagged up the potential for upgrades when I last suggested buying the shares, at 41p (‘Targeting value plays’, 3 August 2020).
Acquisitions helped boost first-half revenue by 83 per cent to £54.5m, but the key for me was that like-for-like revenue matched the prior year and on higher profit margins, too, despite Covid-19 disruption. Importantly, the recovery is gathering pace in some areas. For instance, Poundfield, a maker of pre-cast concrete products, reported record revenue in both May and June, and CCP Building Products, a supplier of concrete blocks and aggregates, has seen demand return to normal levels. Analysts at brokerage Peel Hunt have taken note, upgrading their full-year pre-tax profit and EPS estimates by 42 per cent to £10m and 3.3p, respectively.
The acquisition of the outstanding 60 per cent interest in South Wales quarrying group G.D. Harries (GDH) is a smart move. SigmaRoc can implement operational improvements by using its quarry management and concrete expertise, source lower cost materials (especially cement), and expand the customer base eastwards towards Cardiff. Consolidation in local asphalt production looks set to continue into aggregates, thus offering scope for improved profitability within the industry. GD Harries controls around 14 per cent of asphalt production in South Wales.