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SIG's third profit warning drags down building materials peers

The building materials supplier said underlying profit before tax for 2019 will come in around £42mln, versus analyst expectations of £68mln

SIG PLC -
There's not been much blue sky for the roofing specialist

SIG PLC (LON:SHI) shares slumped to a three-year low after continued softness in the construction market in December led to a third profit warning in five months.

Underlying profit before tax for the calendar year is now seen coming in around £42mln, versus market expectations of £68mln, despite several “profit protection measures” being introduced through the autumn.

READ: SIG warns on profits as construction slump worsens in UK, Germany

Following profit warnings in September and October, the building materials supplier added that after the “deterioration” seen in the level of construction activity in key markets last year, “key indicators continue to point to further weakening, principally in the UK”.

The Distribution business reported revenue down around 26% and the roofing-focused Exteriors arm saw revenue fall 12% in the second half.

Despite a stronger November, December saw a sharp drop in sales, down a quarter per working day compared to November, with the UK performance materially worse than Europe.

UK sales fell 18% on a like-for-like basis, exacerbated by a decision to focus less on low-margin work, while Europe dipped 1%.

Net debt ended the year at £162mln, plus there was another £26mln from debt factoring.

The agreed sale of the Air Handling and Building Solutions businesses will generate around £204mln of net proceeds and result in a net cash position by the end of June.

Once these disposals are complete, management intend to terminate the debt factoring arrangements and target headline financial leverage, on a non-IFRS 16 basis, of approximately 0.5 times underlying profit (EBITDA) compared to the 1.8 ratio seen at the end of 2018.

Wide slump

SIG shares slumped 23% to 88.5p in early morning trading, the lowest since late 2016.

Broker Peel Hunt downgraded its rating to 'hold' as it cut its PBT forecasts for the year, expecting the UK to have made an operating loss in the second half, and slashed its 2020 estimate to £39mln from £76mln.

SIG's warning also dragged down the shares of its sector peers, with Travis Perkins (LON:TPK) falling 4%, Grafton (LON:GTFU) and Kingfisher (LON:KGF) dropping 3% and Howden’s (LON:HWDN) down 1%.

Quick facts: SIG PLC

Price: 20.92 GBX

LSE:SHI
Market: LSE
Market Cap: £123.75 m
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