Part 131 Jul 2024 16:03
AI transcription - part1
Fundamentally undervalued, both on an absolute and relative basis, the current share price of just below 70 pence compares to our estimations of value, fair value of up towards the one pound 60 level. The current market cap of around seven 40 million combined with net debt of around 580 to 590 million leads an EV, or about 1.3 billion. So looking at an EV EBITDA multiple in full year, 24 that EV, but our multiple is six times, falling to 4.9 times in full year, 25 and full year, 24 PE of 9.1 falling to 7.3 times in full year 25 we would advise investors to look towards the full year 25 multiples, because that is the first year of the full 12 Months contribution from the acquisition of crhs Lime businesses. The acquisition of CRH is lime and limestone asset changes the end market mix away from high cyclical areas such as construction. Prior to the deal, sigma's exposure to the construction, end market was 50, 57% of revenue. This is now down to below fifth percent. It also diversifies geographic mix, with Germany becoming the largest market. Obviously, Germany is the largest industrial market in Europe, so good to get a market leading position in the country. It should also be stressed that within lime and limestone, that the market is now a duopoly structure in terms of where sigma rock operates, it is number one or number two player in its seven main markets with at least 30% share. And that does include Germany. It also increases the group's exposure towards lime, which becomes around 60% of revenue. You know, lime is generally higher margin than other other aggregates. It also tends to be less cyclical, because it plays such an integral role in manufacturing process across various industries, whether it's steel, glass or agriculture. Dual ballistic market structure is also beneficial for sigma rock, because large OEMs need a strong commercial relationship with it in several of its core markets, because they need to guarantee volume and the quality of the input that they're getting. This means that around 30% of sigma rocks. Revenue is based on a five to 3030, year contract that obviously provides good visibility. Debt is high when looking at, you know, the Circa 590 million at the end of full year, 24 but we think the business should be able to cope with this is not a concern on using pro forma full year 24 that is more like 2.4 times, is materially inside covenants. And we also believe the interest covenant has plenty of headroom. We also think that there's potential divestments as the business continues to churn its asset base, so some of the more general aggregates could be sold. We've seen some divestments over the last couple of years.
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