Jefferies upgrades SIG after strategy day

Jefferies upgraded insulation and roofing supplier SIG to 'buy' from 'hold' and lifted the price target to 200p from 150p saying the recent strategy day mapped out a credible turnaround plan.

"The road will not be straight, but we expect management to fully deliver on their 5% margin targets in the medium term. Much of the turnaround lies within the group’s control and is not predicated on rapid recovery in the group’s end markets" it said.

Jefferies pointed out that SIG's strategy is to achieve 5% return on sales and 15% return on capital employed margins in the medium term, while reducing leverage to less than 1x. It said that in essence, the strategy involves doing more with what the group already has.

Management has identified three strategic levers, customer service, customer value and operational efficiency, supported by enhanced data and IT services.

"We expect continued focus on cost reduction and potential non-core disposals to drive profitability improvements in the short term, with gross margin enhancements (a result of better sales mix) being back-end loaded. We take comfort from management’s obvious focus, and a refreshed set of KPIs," said Jefferies.

At 1355 GMT, the shares were up 5.5% to 173.60p.