SHI....... BROKER UPDATE......17 Nov 2015 07:48
SHI SIG PLC
From III board.......
SIG pins hopes on massive savings
By Harriet Mann | Mon, 16th November 2015 - 14:23
SIG pins hopes on massive savings Less than four weeks after a savage profits warning triggered a dramatic sell-off, SIG (SHI) has, at least temporarily, plugged the flow of equity leaving the specialist building materials company. Full-year profit guidance remains unchanged, but trading did improve in October, and cost cuts and fixing its supply chain could save tens of millions of pounds.
After underlying pre-tax profit jumped to £98 million in 2014, SIG last month slashed expectations to more like £85-£90 million this year following a difficult third-quarter in France and the UK Repair, Maintenance and Improvement (RMI) sector. This warning wiped out a third of the group's market value in about a month, as the shares plummeted from 179p to a low last week of 117p.
But like-for-like numbers were positive in both UK & Ireland and Mainland Europe in October, and while we shouldn't read too much into one month's data, it's certainly good news.
And at a capital markets day, SIG chiefs will tell major shareholders and analysts how it will cut costs and grow earnings. The numbers bandied around ahead of the presentations are significant.
Changes to the supply chain could save £20 million, and growing its air handling and offsite construction businesses over the next three years should make SIG a further £30 million. Together with £10 million of ongoing procurement savings, the company could grow profits by an extra £60 million by 2018. Incredibly, SIG believes a possible phase two of supply chain changes could save an additional £30 million.
As most capital market days reveal little new information on a company, <b><i>Panmure Gordon analyst Adrian Kearsey reckons it is "refreshing" SIG has announced a clear target for earnings growth, especially given its strong record of achieving targets. The group has been performing ahead of targets set two years ago in a three-year plan to drive £30 million of savings.
"The plans represent a material potential upside for investors," explains Kearsey. "Relative to our FY17 forecasts (we currently do not have published FY18 numbers) this represents a 46.4% uplift to PBT." He thinks SIG will make £85.3 million, or earnings per share of 10.5p this year.</i></b>
Despite basing the trading update on only one month's data, buyers have jumped on the news which has sent SIG shares 6% higher to 128p. They now trade on 10.6 times earnings estimates for 2016, but that seemingly modest rating is justified by both the business climate and execution risk. It will require an improving trend and evidence of massive savings before investor confidence is truly restored.
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