SIG — Foundations of a recovery plan laid

SIG (LSE: SHI)

Last close As at 25/03/2025

GBP0.13

−0.52 (−3.90%)

Market capitalisation

GBP152m

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Research: Industrials

SIG — Foundations of a recovery plan laid

SIG has endured tough trading conditions and some questionable strategic initiatives over the last 10 years. Assuming that underlying construction markets in SIG’s core geographies can muster some growth from H225, the combination of top-line growth and reduced costs could drive the EBITDA margin towards management’s 8% target. If achieved, there is the potential to reduce debt and for SIG to benefit from a material re-rating.

Andy Murphy

Written by

Andy Murphy

Director of content, industrials

Industrials

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25 March 2025

Price 12.88p
Market cap £156m
Price Performance
Share details
Code SHI
Listing LSE

Shares in issue

1,181.6m

Net cash/(debt) including leases at 31 December 2024

£(497.3)m

Business description

SIG is a leading pan-European supplier of specialist insulation and sustainable building products and solutions. It serves the UK market, and also has strong positions in France, Germany, Poland, Benelux and Ireland.

Bull points

  • Structural long-term demand for building materials and insulation.
  • Market-leading positions in numerous geographies.
  • Reinvigorated management driving recovery.

Bear points

  • History of strategic errors by previous management.
  • Underachieved previous recovery targets.
  • Heavily indebted, especially when lease debt considered.

Analyst

Andy Murphy
+44 (0)20 3077 5700

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Revenue recovery evidence in H224

FY24 revenue declined 4% to £2.61bn but H2 saw a marked recovery, with a 2% like-for-like decline (vs -6% in H1). The decline comprised a 3% drop in pricing and a 1% decline in volumes due to weak markets. In the UK, improvement was seen across all three divisions in H2 and the French and German divisions performed well in tough markets. The Polish market suffered in Q3, but has since stabilised and in Benelux, business benefited from its restructuring plan. Ireland, one of SIG’s smallest markets, continued to perform very well after a soft FY23.

Recovery plan outlined in October 2024

SIG’s ongoing restructuring plan and efficiency initiatives continue to gather pace. Management is targeting an 8% EBITDA margin over the medium term, compared to the 2009–18 average of 7% and 4% in FY24, suggesting the target is stretching but not out of reach. SIG anticipates that 2% will be driven by operational leverage (ie market growth), 1% by recovery from two loss-making divisions (UK Interiors and Benelux) and another 1% from gross margin and productivity improvements.

Elevated post-IFRS gearing to be reduced to 2.5x

On a post-IFRS 16 basis (including lease debt), FY24 net debt was £497.3m, up from £458m a year earlier, reflecting the £39m decline in free cash generation. This implies leverage of 4.7x. Net debt, excluding leases, was £174.7m (FY23: £128.6m). On a medium-term basis, SIG is targeting a reduction in gearing from the 4.7x mentioned above to 2.5x on the same basis and to 1.5x on a pre-IFRS 16 basis.

Re-rating possible if margin target achieved

Management’s medium-term EBITDA margin target of 8% implies EBITDA of £208m on current revenue estimates. This, in turn, implies that SIG would be trading on an EV/EBITDA multiple of just 1.5x versus an average of c 9x over the last four years, suggesting significant potential upside in the share price. Profitability of this level should reduce debt, which could result in an equity for debt switch in the valuation, offering further upside potential. Thereafter, dividend resumption is possible.

Source: Company data, LSEG Data & Analytics

Consensus estimates

Year end Revenue (£m) EBIT (adj) (£m) EPS (p) DPS (p) P/E (x) Yield (%)
12/23 2,761.0 53.1 0.04 0.00 N/A N/A
12/24 2,612.0 25.1 (1.70) 0.00 N/A N/A
12/25e 2,647.0 34.2 (1.70) 0.00 N/A N/A
12/26e 2,740.0 50.2 (0.01) 0.14 N/A 1.1

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