SIG (SHI) shares plunged by a fifth in early trading after the building products supplier issued a profit warning, citing a further weakening of its end markets.
At its half-year results in September, SIG chief executive Meinie Oldersma commented that he had not observed much new building work in the UK over the preceding 12 to 18 months. But the business’s internal health has improved, with increased trading cash flow and falling working capital levels helping to bring SIG’s net debt down by 10 per cent against its 2018 interim period.
The group’s latest announcement indicates that this trend is likely to continue. SIG disclosed that it has agreed to dispose of its air handling division and its building solutions business for €222.7m (£198.3m) and £37.5m respectively. SIG will use at least £130m of the air handling sale’s proceeds to bring down its debt, while the net cash proceeds from building solutions will also go towards this purpose.
Excluding its lease liabilities, SIG’s net debt stood at a multiple of 1.4 times cash profits at its interim results. Reducing this level further has been a stated priority for the group.
But the markets took fright at the company’s observation that the deterioration in construction activity in SIG’s key markets “has accelerated over recent weeks”, as political and macroeconomic uncertainty continues to increase. Although SIG is entering what is traditionally its strongest period, it admits that both its specialist distribution and roofing merchanting businesses are now likely to underdeliver on full-year expectations.
House broker Peel Hunt cut its pre-tax profit and earnings per share forecasts following the announcement. It now expects full-year 2019 pre-tax profits of £68m, down from its previous forecast of £80m, and EPS of 9.6p, down from 11.1p.
