Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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I think that anybody expecting anything other than a trading update in line with guidance will be disappointed - it may seem like a damp squib. For me, the originaI investment case is likely to remain undiminished - improving if they can show a move towards profitability on whatever business they have done. And vaccine roll-out over the next year will help.
In the absence of anything Sig specific, I do not intend to post again prior to the update. To do so would just be adding (even more) twaddle with an update in the offing.
Turning to the trading update on 11th. January, we have been told in advance what the company expected to report. Given that the guidance was published half-way through the period to be reported upon, when the trajectory would have been reasonably clear, I anticipate a trading update at least in line with it. With regard to revenue, " the Board now expects full year sales to be moderately higher than guided in May." In May they guided "management expects revenues for 2020 to be approximately £500m lower than 2019 as reported, post the disposal of the Air Handling division." So something better than £1584.7m, and anecdotally, it seems to have been a busy second half in the sector.
On profit, a form of warning exists, insofar as we have been told "The second half of 2020 is expected to remain loss making, but at a lower rate than the first despite some increased pressure on gross margin in the UK." The more losses can be constrained to the point of profitability whilst clawing back market share, the greater the earlier recovery prospects. That is the nub of the matter.
Sig is far from profit, and funding without raising more cash, in the interim is essential. That is why in addition to earmarking cash from the capital raise to pay for the unwind of some £13m of various government relief in connection with the COVID-19 pandemic, and to give headroom for capital outgoings including restocking, as advised on 19th. June, they had arranged:-
£234 million of remaining facilities, with no amortisation or scheduled repayments until May 2023 compromising:
£139 million of Notes following repayment of £48 million of outstanding principal, at par (from the proceeds of the Capital Raise);
£70 million term facility (representing existing RCF drawings);
£25 million revolving credit facility, following a cancellation of existing commitments under the RCF.
Activities post end of first half led to Sig reporting on 24th. September that at 31st. August the Group had cash resources of £267.5m, with a net cash position of £29.2m. So good headroom there.
In my opinion :-
It has been a dire year, punctuated with thoughts on Brexit and Covid. There was some relief on a free trade deal, now yesterday's news, though there will be continued discussion on matters as they arise. The vaccine roll-outs news provided relief on the second. But again, that relief has evaporated, as commentators turn their minds to headwinds and economic recovery, and conclude that the economy will in any event lag nationwide and international vaccine programmes. Recent reporting has largely turned to the negative, and even in a supported sector like construction the slow recovery being forecasted for the sector warns of wobbles and unpredictability for builders, suggesting that those involved in taxpayer funded work, taking advantage of govt. initiatives, will be better placed than those working to the private sector. Sig, as a trade merchant, should be somewhere in the middle of that.
Paradoxically, unlike Sig, housebuilders have held up quite well in recent days. I can only conclude, on no company-specific news, that investors have less faith in Sig than they do in their customers, the builders, who have a better back-story than the previously poorly managed Sig. In a relatively low volume week, though some have bought in, pi's have on balance been coming out or trimming their positions. The upcoming trading update will also exercise the minds of those who actually read RNSs. Of those who do, some will want to be in, others out. Some will be pretty ambivalent with regards the update, and looking beyond it.
One regional example ( no doubt there are others ) of social housing providers getting together to upgrade their housing stock.
https://www.constructionenquirer.com/2020/12/29/bid-race-starts-for-650m-housing-upgrade-framework/
If true, it becomes apparent that CD and R continue to consider their decision to buy into merchants to the construction industry was sound.
https://www.thisismoney.co.uk/money/markets/article-9089499/amp/Plumbing-company-Wolseley-targeted-600m-buyout-war.html
https://www.builders.org.uk/news/uk-eu-trade-deal-a-good-day-for-british-construction-says-nfb/
A post has 'disappeared' for the moment giving the trading update as being on 11th. January. People will have to be thinking about whether they wish to hold a position in Sig.
The trading update for its FY ending 31 Dec 2020 will be/should be published at 0700 on 11 Jan.
Sarah Beale, chief executive of the Construction Industry Training Board (CITB), added: “Throughout the pandemic, UK construction has worked hard to stay open. There is a very strong demand for skilled people in our industry – the number of vacancies is back to where it was before the pandemic hit. And with the level of government investment in infrastructure, new homes and retrofitting for reducing carbon, we are expecting a big recruitment drive in the New Year.”
https://rcimag.co.uk/news/construction-vacancies-see-a-rise-back-to-pre-covid-levels
Nothing to be pleased about today for UKplc.. My belief though, for Sig, is that the immediate disruption will pass and make its way into longer lead times for the consumers, with merchants clearing a backlog of orders. Original recovery prospects for the company remain. The possible perception of no goods to sell, is probably worse in investors minds than Brexit, with tariffs being passed on, or the fact of Covid, with which the industry has been coping. And there is govt. support for construction in Sigs areas of operation. So I trust for my purposes we are seeing the low at 30p.
And then we return to the trading update, as always.
Sites to remain open as London and South-east go into fresh lockdown measures
By Dave Rogers19 December 2020
boris december
Rules tightened across whole of UK to combat rising spread of covid
Construction sites will be able to stay open, as the prime minister this afternoon (19 December) confirmed that London and the South-east will be put into a new, higher tier to combat the spread of covid -19.
The new rules, which come into effect from midnight tonight, will see all 32 boroughs in the capital moved into the new tier four along with a string of neighbouring counties such as Kent, Essex and Hertfordshire. In all, around 18 million people are being placed into the new system.
The Scottish Government’s Programme for Government contains commitments to billions of pounds of investment in Scotland’s infrastructure, built environment, and decarbonisation programmes.
https://projectscot.com/2020/12/five-construction-themes-for-2021/
This sort of thing will filter down over time - all the govt initiatives add up, and the uk infrastructure bank should help private projects get off the ground. That is one reason apart from restructuring to advantage that I am optimistic about Sig as a recovery stock for the future, coming off a low base level. And I think they may have done quite well over a busy 6 months, taking into account the obvious disruption to most businesses during unprecedented recent times.
https://projectscot.com/2020/12/scottish-government-announces-800m-upgrade-of-25-schools/
A snapshot from another part of the construction industry.
Nick Kershaw, managing director at National Timber Systems, said: “National Timber Systems serves some of the country’s largest housebuilders, and it’s been essential that we quickly scale up our capacity and improve efficiency to ensure we can fulfil the increased volume of orders. This investment furthers our ability to do this, and also gives us additional flexibility and room to continue with our growth plans.”
https://rcimag.co.uk/news/national-timber-systems-doubles-its-joist-capacity
CLC calls on government to support £525bn national retrofit programme
By Tom Lowe17 December 2020
Scheme would see overhaul of UK’s 28 million homes over the next 20 years to improve energy efficiency
The Construction Leadership Council (CLC) has called on the government to support a £525bn retrofit programme to make the UK’s 28 million homes greener over the next two decades.
The group said that without a long-term national retrofit strategy to improve the energy efficiency of homes, which currently emit 20% of the UK’s carbon emissions, the government will be unable to meet its targets to achieve net zero by 2050.
…
Noble Francis, economics director at the Construction Products Association (CPA) thinks that the impact of a WTO tariff regime would not, relatively speaking, be especially disruptive in its own right.
Tariffs levied on construction materials – such as wood, metals and machinery – are typically well under five per cent and would, Francis suggests, be seen by businesses as a manageable and predictable cost in terms of published tariff levies.
He sees far greater potential for disruption arising from delays at ports if goods have to be physically stopped and checked; and from new administration procedures that would have to be introduced overnight.
Is there a day that the guardian doesn't write an article about trucks and port delays over Brexit?
Don't know why people even bother reading the Guardian they have fallen so low. Their investigative journalism used to be the best in the UK, now it is just opinion pieces from momentum and assumptions on the future based on remainer ideologies.
Brexit is this share biggest enemy right now over covid.
There is reporting of materials delays at ports this morning, due mostly to an increase in demand by builders overloading the system. Example - https://www.theguardian.com/business/2020/dec/07/builders-run-short-of-supplies-as-uk-port-holdups-raise-brexit-concerns?
Hopefully it will prove temporary - govt. will spare no effort to rectify delays in the interest of economic stimulus through construction.
It is possible to view unfulfilled demand as a good sign for builders merchants.
Not a fantastic start to the week so far but providing we remember 'CONSTRUCTION WILL NOT STOP' and that Boris will pump millions into the industry to get us out of this hole things will be ok.
SIG is still the bargain share for me at this price. It has safety, opportunity and stability - its going nowhere... but up long term