Liberum Capital has officially initiated coverage on SigmaRoc PLC (LON:SRC) with a ‘buy’ rating and a 59p target price after publishing its first estimates for the construction materials firm last week.
In a note to clients, the City broker’s analysts said: “SigmaRoc was set up to buy and build heavy building material assets. It is proving it can find and improve these assets and there are many more opportunities in this industry.”
READ: Liberum publishes first estimates for SigmaRoc using “prudent assumptions across the businesses”
The analyst added that raising underlying earnings (EBITDA) at its first acquisition, Ronez, by 37% proves the ability of management to improve acquired businesses quickly, with early signs in its precast products group (PPG) encouraging.
They noted that since the Ronez purchase, SigmaRoc has added four more assets, at low multiples, with improvement potential, culminating in December’s £15.2mln acquisition of Liverpool-based concrete blocks and paving stones maker CCP Building Products.
The analysts added: “CCP looks the best deal yet, bringing critical mass to the PPG group, boosting EPS by 2-4% in 19E and 4-9% in 20E on prudent numbers, and raising expected growth rates.”
The Liberum analysts pointed out: “We ignore future deals, but we expect SigmaRoc to make further acquisitions as there are many more targets in aggregates and concrete.”
They noted that the group is very cash generative, so they expect its leverage to fall fast - to 0.4x in 2020.
The analysts concluded that SigmaRoc’s valuation looks cheap at 7x EV/EBITDA and 11x PER, while its yield of 9% free cash flow (FCF) and 1x book show its cash and asset backing.
They noted that there is 41% upside to their 59p target price, set using fundamentals and multiples, based on Monday’s closing price of 41.70p.