SIG reports first profit in four years

Insulation specialist SIG (SHI) is building layers of its own, making its first pre-tax profit in four years. 

The group embarked on a ‘Return to Growth’ strategy three years ago. It tapped shareholders for £165mn to make investments in a business that had been starved of cash, and the strategy is finally starting to show results (if not yet pay dividends).

Like-for-like revenue grew by 17 per cent, driven by higher pricing. Its UK interiors arm, which provides more than a quarter of group revenue, returned to profit through “better pricing discipline and improving product mix”, allowing it to retake market share. 

It isn’t out of the woods yet, though. Although the group’s underlying operating margin improved, it still stands at just 2.9 per cent. New chief executive Gavin Slark, who recently joined from Grafton (GFTU), reiterated its medium-term aim of growing this to 5 per cent. 

It achieved positive free cash flow of £11mn (compared with a £124mn outflow in 2021) but net debt still rose by almost £80mn to £444mn, triggered by a £46.6mn increase in lease commitments.

Although improved earnings meant its leverage ratio eased to 2.8 times, from 3.2 times in the prior year, borrowing levels remain elevated. With the company forecasting “weaker demand conditions” this year as new housing and home improvement markets struggle, bringing it down further could prove tough. 

SIG’s shares trade at 13 times broker Liberum's earnings per share forecast of 2.9p, which is well below their five-year average. The bank’s analysts think there is “considerable upside” if the company meets its 5 per cent target, but the way the market is shaping up means that’s a big ‘if’. Hold.

Last IC View: Hold, 36p, 9 Aug 2022