SIG PLC (LON:SHI) has issued its second profit warning in as many months as UK and German construction markets have deteriorated more sharply in recent weeks
Full-year profits in both the specialist distribution and roofing merchanting businesses are expected to be “significantly lower” compared to previous expectations.
The FTSE 250 insulation specialist said these would normally be the most important months of the year.
Red flags for construction activity in the UK and Germany had been waved in recent PMI data, with SIG pointing the finger at increased “political and macro-economic uncertainty”.
SIG said it had agreed the disposals of its Air Handling arm for €222.7mln and Building Solutions for £37.5mln.
The proceeds from these disposals, which completes the board’s 2017 plan to exit “non-core” businesses, will leave the group free of bank debt by early next year, with some excess cash returned to shareholders.
'Market wide' problems
Analysts at Jefferies said the lower profitability in these divisions was predominantly driven by sales reductions, "which management believes is market-driven rather than company-specific", while noting there was limited change to the company's operating margin assumptions.
"Management believes consensus forecasts would be sufficiently derisked if reduced by £10-15m for recent trading - September delivered around half of the budgeted profit, and such a magnitude of consensus adjustments would also imply a very difficult October (as flagged at the 1H19 results, SIG generates c.1/3 of annual profit in September, October and early November)."
Russ Mould at AJ Bell said that given the gloomy market backdrop, it suggests the tough market trends have further to run for SIG and its sector mates.
“SIG has issued numerous profit warnings in the past few years as the UK construction market goes through a very difficult patch," he added.
SIG shares were down 18% to 97.7p on Monday morning, while others in the building supplies sector were down too, with Travis Perkins PLC (LON:TPK) and Grafton Group PLC (LON:GFTU) both down more than 3%.
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