SIG shares surge as update reassures investors

SIG reported an 11.2% rise in group sales in the year to the end of December, a performance it described as “disappointing” as it admitted that it lost sight of its customers somewhat due to its transformation programme, but investors appeared relieved it wasn't another profit warning.

Group sales at the specialist building products distributor increased to £2.7bn from the the previous year on the back of foreign exchange movements and acquisitions. On a like-for-like basis, this was a rise of just 0.3%.

The company said it continues to expect underlying pre-tax profit for the year will be within its previously stated range of £75m to £80m and that gross margin will be around 30 basis points lower than the previous year.

In the UK & Ireland, LFL sales in the year increased 1.1%, with SIG Distribution up 1.2% and SIG Exteriors down 1.5%. In Mainland Europe, LFL sales declined 0.5%, with France and Germany down 2.0% and 1.3% respectively.

SIG's leverage as at the end of December is expected to be around 2x (net debt to EBITDA), above its medium-term target of 1- 1.5x and the company said it will prioritise leverage reduction by more tightly focusing on its cash generation, moderating capital expenditure and suspending its infill acquisition programme.

Chief executive Mel Ewell said: "2016 was a disappointing year for SIG. While the competitive environment, particularly in the UK, was challenging, our transformational change programme, although taking the group in the right strategic direction, distracted us somewhat from our customers.

"Going forward we need to better balance business change with the day-to-day operations of the group. Our principal aims for 2017 are therefore to restore our customer focus, place an increased emphasis on sales growth, and reduce leverage."

Canaccord Genuity said the market was likely to be relieved that it was not another profit warning and that management appears to be taking sensible near-term steps to get the group in better financial order.

"A key issue for valuation remains the medium-term potential and delivery of improved financial performance in the context of a depressed valuation. Near term, no further profits warning and a prioritisation of leverage reduction should provide some relief and support for the shares."

Back in November last year, SIG tumbled after it issued a profit warning. The company said at the time that it expected pre-tax profit to drop to between £75m and £80m for the full year, down from £87.4m the year before.

At 0910 GMT, the shares were up 10% to 103.20p, bouncing back from heavy losses on Thursday ahead of the update.

Mike van Dulken at Accendo Markets said shareholders were "breathing a collective sigh of relief" on the share price jump.

"This more than makes up for yesterday’s worrying near-6% pre-trading-update drop. It also reverses a poor start to the year that itself follows an annus horribilis which saw the shares plunge over 25% after the Brexit referendum and another 22% on a November profits warning that claimed the scalp of the CEO."