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Insulation specialist SIG thickens margin

Underlying operating margin widens to 3.1 per cent, from 1.3 per cent a year earlier
August 9, 2022
  • Higher working capital leads to cash outflow
  • Non-cash charge inflates net debt

Insulation specialist SIG (SHI) is continuing its slow-but-steady recovery, even in a market that has become more challenging as disposable income comes under pressure.

The company entered the pandemic in a bad way after almost a decade of restructuring and cost-cuttings had eaten away at profit, morale and almost everything else other than a stubbornly-high debt pile.

A remedial ‘return to growth’ strategy has meant increased spending in certain parts of the business – to rebuild relationships with suppliers and to decentralise decision-making powers to branches, for instance – and after a couple of years of heavy losses it is paying off.

Like-for-like sales grew by 21 per cent in the first half and its underlying operating margin widened to 3.1 per cent, from 1.3 per cent in the same period last year.

Cash continued to flow out of the business, though. The company said this was partly due to higher inflation but also sales seasonality. It expects an unwinding of working capital in the second half to contribute to a return to positive free cash flow.

This would be welcome. Although the company was rightly given more breathing space by lenders, it can’t afford to ignore its liabilities. Net debt increased by 18 per cent during the first half to £432mn, mainly due to a £64mn non-cash revaluation charge. 

Although a near-doubling of adjusted cash profit meant its leverage ratio fell to 3.0 times, from 3.9 times at the end of last year, the danger for investors is that as interest rates continue to tick higher, the additional earnings the company generates will once again be eaten up by debt servicing. Hold.

Last IC View: Hold, 39.8p,11 Mar, 2022

SIG (SHI)    
ORD PRICE: 35.6pMARKET VALUE:£420mn
TOUCH:35.5-35.7p12-MONTH HIGH:55pLOW: 29p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:24p*NET DEBT:155%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20211.11-2.60-0.80nil
20221.3626.201.40nil
% change+23---
Ex-div:-   
Payment:-   
*Includes intangible assets of £134mn, or 11p a share