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SIG PLC surges as like-for-like sales show signs of growth

Last updated: 14:22 13 Jan 2017 GMT, First published: 07:22 13 Jan 2017 GMT

Building products
The Distribution side had a better year than SIG Exteriors

An acceleration in like-for-like sales towards the end of the year saw the share price of building products distributor SIG PLC (LON:SHI) surge.

Group sales in 2016 were around 11.2% higher year-on-year at around £2.74bn, helped by foreign exchange tailwinds, which accounted for 6.9 percentage points of the gain, and acquisitions, which accounted for 3.7 percentage points.

That was around 1.7% below the market consensus, according to Shore Capital, but there was good news on the like-for-like sales front.

On a like-for-like (LFL) basis, sales were up 0.3% overall, with the UK & Ireland up 1.1%; in mainland Europe, sales fell 0.5%, with France down 2.0% and Germany down 1.3%.

According to Shore’s Graeme Kyle, to the end of October the LFL sales were flat, “indicating an acceleration in like-for-like revenue growth in last two months of the year”.

The shares shot up 17% to 109.9p, with Kyle suggesting an element of relief at the absence of another profit warning might have been responsible, in part, for investors’ enthusiasm.

Underlying profit before tax for the year should be within the previously stated guidance range of £75mln to £80mln when all the numbers are finally totted up, the group confirmed.

Adrian Kearsey at Panmure Gordon reiterated his ‘buy’ recommendation after the update.

“The valuation highlights that many investors anticipate the position in the UK is unlikely to reverse anytime soon; however, the new CEO is reducing emphasis on change management and ensuring front-line resource is more focused on selling. Early indications are encouraging with UK LFL +2.5% YoY in November-December, though we recognise the turnaround may take time,” Kearsey said.

Interim chief executive Mel Ewell alluded to the change in emphasis in his statement.

“While the competitive environment, particularly in the UK, was challenging, our transformational change programme, although taking the group in the right strategic direction, distracted us somewhat from our customers,” admitted Mel Ewell, chief executive of SIG.

Indebtedness remains a concern, with gearing – net debt divided by underlying earnings (EBITDA) – clocking in at around 2.0, versus SIG's medium-term target of 1 to 1.5.

"Going forward we need to better balance business change with the day-to-day operations of the group. Our principal aims for 2017 are therefore to restore our customer focus, place an increased emphasis on sales growth, and reduce leverage," Ewell said.

Panmure’s Kearsay conceded that the construction market remains tough but thinks it is more likely to outperform expectations than disappoint.

“Moreover, SIG is fighting back: partly on price, partly on customer focus. Whilst November/December are very small trading months the new focus is showing early signs of success,” the analyst said.

“In a more upbeat construction market, the various change management programmes would have been manageable (but that was not the case). Essentially, Mel Ewell (CEO) is taking SIG back to its heritage,” Kearsay said.

The analyst steered clear of saying the statement signalled a turnaround in the business, “but there are no further shocks and the back-to-basics approach being adopted should (in-time) yield positive results. In the meantime, the 5% prospective yield is paying shareholders to hold the shares,” he concluded.

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