SIG makes progress but not profit

It could be argued that insulation specialist SIG (SHI) achieved what was expected of it in its 'Return To Growth' strategy, for which it raised £165mn from shareholders in 2020.

Like-for-like sales jumped 24 per cent last year and were even 8 per cent ahead of pre-Covid levels in 2019. Investors are having to wait a little longer for the business to turn a profit, though.

Progress has been made, with a rebuilt UK operation helping to turn its group operating margin positive – to 1.8 per cent, from minus 2.8 per cent last year. It has set a longer-term goal of achieving a 5 per cent margin, with a more immediate target of 3 per cent by the end of next year.

Overall net debt jumped by £127mn to £365mn, though, as £124mn in cash flowed out of the business due to acquisitions and higher inventory spending as it sought to avoid supply shortages.

These reflect the fact that the construction industry remains in rude health – January was the third successive month where output grew by more than 1 per cent, according to ONS figures.

Geopolitical issues are also to the fore. The supply-side problems affecting the construction industry are set to worsen due to the ongoing military action in Ukraine and the actions taken by western governments in its wake. That could mean higher prices and shortages for key products such as aluminium, copper and iron ore, a situation which could be exacerbated by the sanctions being brought against various Russian industrialists. Indeed, the European Federation of Building Material Distributors is encouraging members to stop importing Russian building materials while the security situation remains dire in Ukraine. Prices of certain construction products have increased by a fifth already in 2022, with the soaring price of energy adding to the problem.

SIG’s improving prospects allowed the company to raise €300mn (£252m) in five-year, 5.25 per cent coupon bonds in November, giving it the opportunity to refinance on better terms, repaying £130mn of private placement notes and a £70mn loan.

The brighter outlook meant broker Peel Hunt lifted its earnings per share forecast by 28 per cent to 2.3p. But even at this improved level the shares trade at 17 times earnings and we’d like to see the company generating more cash before changing our hold recommendation.

Last IC View: Hold, 44p, 22 Sep 2021