SIG struggles with wider construction downturn

Gavin Slark, chief executive of SIG (SIG), reassured investors that the Sheffield-based group remains “well positioned to benefit from long‐term structural growth drivers”. This seems reasonable given SIG is a prominent supplier of specialist insulation products. The built environment is changing due to the spread of net-zero policies, but the pace of change varies across the regions and SIG is now faced by a wider industry slowdown as successive rate rises have put the brakes on the economy.

Earlier in 2023, the group registered its first annual profit in four years together with a 20 per cent hike in sales. A portion of that sales growth reflects the ability of SIG to pass inflationary cost pressures through to customers. Six months on and the overall impact of inflation added an estimated 9 per cent to revenue at the half-year mark. However, once these inflationary effects are factored into the equation, it becomes apparent that like-for-like interim revenue has been flat, as volumes have been in retreat. Indeed, the uptick in reported revenues was purely down to positive currency translations and the impact of acquisitions.

The deteriorating market backdrop and “higher than normal operating cost inflation” have weighed on margins. Consequently, underlying operating profit fell by 23 per cent to £32.7mn as the underlying margin decreased by 80 basis points to a lowly 2.3 per cent – not a great deal of wiggle room there.  

Management has made no secret of the challenging market conditions facing the group, which have also resulted in another free cash outflow. Underlying operating profit for 2023 is expected to be in line with the board's recently revised guidance, but it’s not hard to appreciate why the share price premium to net asset value has narrowed appreciably over the past six months. Sell

Last IC View: Hold, 39p, 8 Mar 2023