Canaccord cuts SIG to 'hold' after profit warning

Canaccord Genuity downgraded SIG to ‘hold’ from ‘buy’ and cut the price target to 99p from 130p following the company’s profit warning and announcement of its chief executive’s departure last week.

SIG said on Friday that it now expects underlying pre-tax profit for the year ending 31 December to be between £75m and £80m, which is down from £87.4m last year and below consensus estimates of £90m. It attributed the expected decline in part to weaker-than-expected trading conditions since the EU referendum.

As a result, Canaccord has cut its forecasts and now expects 2016 pre-tax profit of £77m, down from a previous estimate of £95m followed by £78.5m in 2017, down from a previous forecast of £102m. In addition, the brokerage said it is cautious the group will manage to retain its incremental cost savings.

“Until there is more visibility on both trading and the plans of a new management team, we find it difficult to see a compelling investment case, other than acknowledging the potential to extract better growth and returns.

“The UK macro outlook for 2017 continues to look uncertain and SIG is going into 2017 with relatively high leverage (around two times), significant exposure to weaker commercial work, a senior management team in transition and a very competitive landscape.”

At 1118 GMT, the shares were up 0.3% to 90.75p.