- Adjusted revenue and pre-tax profit more than double to £272mn and £26.8mn
- Full-year adjusted Ebitda (cash profit) of £49.3mn forecast to double again in 2022
- EPS up 19 per cent to 5.4p and set to rise to 6.7p in 2022
SigmaRoc (SRC:74p) has delivered the step change in scale and profitability I had envisaged when the ‘buy and build’ heavy building materials group purchased limestone and lime products company Nordkalk for €470mn (£391mn) last summer (‘Bargain shares: On the upgrade’, 23 August 2021). The acquisition accounted for more than a third of group revenue and cash profit in 2021, but more importantly established both the scale and a market-leading position in a strategic new region (Poland, Finland and Sweden), while also diversifying the customer base.
The board’s strategy has been clear since making its first acquisition five years ago: buy, improve and integrate platforms of companies by targeting cash-generative assets in niche markets that produce aggregates, concrete, and other related assets. The latest purchase, Johnston Quarry Group, does exactly that, the company being a supplier of construction aggregates and premium quality building stone across the South West, Oxfordshire and Lincolnshire. The £41.5mn purchase price (including debt assumed) equates to seven times cash profit, in line with the average multiple for the group’s 12 acquisitions.
The enhanced cash-flow generation of the enlarged group – broker Peel Hunt predicts operating free cash flow of £66.1mn (9.8p a share) this year – provides the capacity for ongoing growth investment, while retaining an efficient capital structure. SigmaRoc has £200mn of headroom on debt facilities and started 2022 with net debt equating to 1.7 times Peel Hunt’s £96.7mn cash profit estimate.
Importantly, management has effectively dealt with well-publicised sector-wide pressures. Supply chain issues have been addressed through active fleet management, long-term relationships with haulage suppliers, and securing additional capacity when demand has been strong.
Cementitious products remain in short supply and at higher-than-average prices, so SigmaRoc has been able to substantially mitigate cost inflation through contractual pass-through arrangements and internal efficiency gains. The group’s network of plants are heavy energy users, so there are hedging arrangements in place to protect the business while inflationary pressures have been captured in contractual pass-through arrangements, too.
However, despite management’s undoubted success, SigmaRoc’s share price has shed a quarter of its value in the past 10 weeks and now trades on a modest 2022 price/earnings (PE) ratio of 10.5 and 6.6 times enterprise valuation to forward cash profit. That rating implies a collapse in customer demand that is at odds with both the order book and construction industry activity. Buy.
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