- Heavy buildings materials group SigmaRoc could be joining four more of Simon Thompson's picks that are on the upgrade cycle
- Strong demand is boosting business
Earlier this week, I highlighted no fewer than four companies on my active watchlist that are in strong earnings upgrade cycles (Targeting companies on the upgrade). In fact, such is the earnings momentum that I upgraded my target prices on three of them. It wouldn’t be a surprise if I am forced to do the same again with heavy building materials group SigmaRoc, a company that continues to trade ahead of internal budgets and market forecasts.
Built on solid foundations
- Business trading ahead of internal budget in first four months of 2021.
- Private sector demand is robust and infrastructure demand is starting to materialise.
- Demand for aggregates, concrete and dimension stone particularly strong in Benelux markets.
SigmaRoc (SRC:84p), a group pursuing a buy-and-build strategy in the heavy building materials sector, has issued a very positive trading update at the annual meeting and one that supports a continuation of its ongoing earnings upgrade cycle.
The group’s trading performance in April was “significantly ahead of the same month in 2020” and demonstrates “further like-for-like growth versus March.” Private sector demand is robust and infrastructure demand is starting to materialise with several large-scale projects commencing across the group. Demand for aggregates, concrete and dimension stone has been particularly strong in the Benelux markets driven by the same underlying trends of private and infrastructure demand.
The newly acquired B-Mix and Casters businesses are being integrated at significant speed and the takeover of the crushing installations at Carrieres du Hainaut in Belgium is already yielding the expected increase in production efficiency I outlined in my last article (‘Two economic recovery plays with momentum’, 24 April 2021). Furthermore, organic investment projects are on track to be delivered in South Wales and within the group’s precast products division in the coming months.
Clyde Lewis at Peel Hunt increased his 2021 pre-tax profit and EPS estimates by 10 per cent to £17m and 5p at the time of my last update and is maintaining these forecasts for now. However, he notes that “if current market conditions persist and there are no delays to any materials projects we believe there is upside to our forecasts.” I also feel that there is upside to his 2022 estimates which point to pre-tax profit and EPS of £19m and 5.5p based on 8 per cent higher revenue of £173m.
A 2022 prospective PE ratio of 15, free cash flow yield of 8.6 per cent and enterprise valuation to cash profit multiple of 8.4 times is attractive given the risk to earnings is to the upside and SigmaRoc is seeing strong demand in its end markets which mitigates risk.
The shares have produced an 80 per cent return since I suggested buying, at 46p (Alpha Report: ‘A general election winner’, 12 December 2019), and offer a further 19 per cent upside to my 100p target price. Buy.
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