Member Info for Alvarro

Thanks Unhooked…..since Covid pretty much everyone in the industry has been saying what’s needed is for someone to drop out because there’s too much supply for not enough demand. If you take the emotion out of it and look at it impartially, the company most at risk of doing that is SIG.

People continue to talk about cost savings (and I’m sure the announcement tomorrow will do the same) but these costs are ‘people’ and that does nothing to address the huge fixed cost base that almost every new CEO and MD has added to over many years. The other drawback of simply cutting people out of the business is they typically have relationships with customers and they take those relationships to the competition….one of the very reasons why the competition has strengthened over the years.

Who in their right mind would put up with another rights issue?!? Didn’t we all buy in at the 30p before when CD&R were ‘gifted’ 25p….that went well!

We’re never seeing those dizzy heights of 65p again.

2Reincarnated….I think that’s definitely a possibility, although maybe more through circumstance rather than strategy. I can definitely see a day where the underperforming parts of SIG are hived off (in a similar way that TP did with Wickes) and eventually sold or closed, making the plc healthier as a result. Interestingly before Wolseley were owned by CD&R, Wolseley owned Encon for a time, but could never properly integrate it. Having SIG Distribution alongside Wolseley could work and would give both brands more leverage with suppliers, in the same way that CCF have with TP, and Stark have with Minster and Jewsons.

2Reincarnated….haven’t IKO been in for a long time and if that’s the case, their average share price could be higher than £1? Couldn’t it simply be that they once saw SIG as a good investment but are too far down the hole to get out now?

Teddy….I was on here before with a lot more posts but haven’t been on for a couple of years, forgot my login, changed my email address, so set myself up again. I’m invested in SIG, financially, emotionally and physically (!) so I want nothing more than the business to succeed, but decades of mis-management and a lack of future proofing the business have unfortunately (and with a very heavy heart) led me to believe that the overall business has no future. I work for a part that has remained profitable so I guess we’ll be fine, but as SIG used to say in better days ‘Stronger Together’ and it’s been very difficult watching the distribution arm deteriorate to such an extent that we’ll all be impacted.

Teddy100….I’ve done the research, hence me posting this business is doomed. In 2018 the UK Distribution business had a turnover of roughly £850m but struggled to make any profit. Now, it’s closer to £500m and still struggles to make a profit.

That ‘lost’ £350m has helped to grow businesses such as Galaxy, Encon, Belgrade and numerous smaller independents. You’ve now got Stark (Minster & Jewson) with their P.E backing. You’ve also got the rise of the large merchants (Markovitz, Bradfords, etc.) as well as the large merchant buying groups (who can all compete on price) and the online merchant model, so the customer has more choice in than ever, supply is outstripping demand (and will do for a long time yet), which is pushing margins down and rather than trying to differentiate from this crowded market, SIGs strategy is to just try a sell more…..its the swimming analogy, if you don’t have the right technique, the answer isn’t to just swim faster, you’re just going to fail quicker!

2Reincarnated….you may be right, surely we can’t see another dilution of the shares, so CD&R may be forced into a position of a full takeover or get out entirely.

2Reincarnated….I’d always assumed CD&R would eventually take the whole thing over, particularly with the obvious crossover and benefit of them

owning Wolseley. I’d also assumed they were just waiting (or ‘encouraging’) the share price deterioration so they could get it cheap but now I’ve no idea! IKO and others have been in for a while (although Blackrock got out a month or so ago) so CD&R would surely have to negotiate over the odds to buy them out. This looks at unusual strategy for CD&R who wouldn’t normally just have a share in a company. One thing is certain, if they choose to pull out of SIG and not buy it….the whole company falls apart.

With the share price continuing to slide and now at Covid levels, I guess we’re going to find out if the market still has confidence in SIG when the trading update is issued on January 9th before the 2024 full year results in March.

I wonder if the usual smoke and mirrors of ‘exceptional costs’ and ‘operational efficiencies’ will be believed, particularly when the recent bond refinancing is costing additional interest payments of roughly €13m per year, for a business struggling to make any money!

We seem to be working from the same information but we clearly have a different way of interpreting it. The truest sign of improvement won’t be in the next statement when they talk about efficiency savings and all that nonsense, it will be in the H1 statement next year. SIGs fixed costs are still based on being this behemoth that it hasn’t been in over a decade and the market won’t improve to such a degree to make those costs a reasonable percentage of sales (CPA forecast roughly 2.5% market increase). Stark are going after the same business with their P.E backing, so are CCF, so are Encon, so are Galaxy and numerous others and they all have better business models, so when the margins erode even further (because everyone is fishing from same, ever so slightly larger pond) SIG will be the one to suffer the most. Anything they gain in volume, will be eroded in the margins. It’s a busted flush.

Variable costs have been cut, can’t do anything about the high fixed costs, so any benefit will be very short lived.

In 2021, the European businesses were helping to prop up the PLC (think Germany may have even been the most profitable), that’s not the case any more and with the exception of UK Roofing and France Roofing, they’re all struggling. I’m not suggesting SIG will go bust, but the UK distribution arm could definitely be broken up and hived off.

You honestly think CDR bought in at 25p, so they could see the share price drop to almost Covid lockdown levels a few years later? They were sold a pup!

Unfortunately the UK Distribution business (not talking about UK Roofing), which remains the largest turnover part of the PLC is doomed. It's fixed costs are much higher than it's smaller, more agile, competition and it lacks the buying power of CCF (because they're part of TP) or Stark (because they have Jewson & Minster), so not only can everyone compete against SIG, they can make money when they do because they either buy better or have lower operational costs. Nothing SIG does is different, it sells the same range as everyone else, the only difference is it can't seem to make money doing it.

The 2024 results will no doubt talk about exceptional costs being stripped, but how exceptional can this be when it happens every year? A new CEO comes in, a new MD comes in, they take some employee costs out and the whole 'recovery' begins again......but unfortunately nothing can be done to stop this dinosaur becoming extinct.