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Directors’ Deals: Segro chair shows faith

The chair of industrial developer Segro snapped up £1mn in shares as the price hovered around its lowest point in three years. Andy Harrison bought in towards the end of last month, days after the company swung to a £1.97bn loss in its results for the last calendar year thanks to a £1.95bn nosedive in asset valuation.

Segro and other UK warehouse developers suffered from plunging valuations last year, ending a decade-long boom for the asset class brought on by investor excitement around the role of warehouses in the rise of online shopping — a phenomenon turbocharged by the pandemic.

The admission from Amazon, a key ecommerce warehouse tenant, that it had overexpanded in May last year was the initial cause of the warehouse value slide. This was followed by the “mini” Budget in September, which caused those values to slump further as yield on government debt briefly overtook UK warehouses’ average rental yield and higher interest rates reduced buyers’ budgets.

Harrison’s decision to invest comes after Broker Numis said this month that the developer’s valuation is unlikely to fall much further and it can now focus on increasing earnings.

From an operational perspective, Segro posted a 21 per cent increase in net rental income last year even as its vacancy rate, its percentage of unlet assets by value, increased from 3.2 per cent to 4.0 per cent.

In the wider market, the total amount of newly leased warehouse space last year was less than in 2021 or 2020, but still more than every year from 2007 to 2019, according to data from estate agent Savills. Meanwhile, the same data shows that the UK-wide warehouse vacancy rate for 2022 is higher than 2021, but still lower than every year from 2009 to 2020.

SigmaRoc bosses’ bullish buys

The past 18 months have been rough for the building products market. Higher energy prices, reduced spending on do it yourself and slowing housing markets have caused industry-wide slumps in share prices.

SigmaRoc shares have halved in value since September 2021.

Despite this, the company “still managed to make enormous strategic progress” last year, chief executive Max Vermorken said last week, including the pursuit of a range of new projects for which it has just tapped investors for £30mn to fund.

The owner of quarries and other building materials businesses issued more than 55mn new shares, an increase in its capital of about 8.7 per cent, at 54p — a 1p premium to its closing price. Several of the directors including chair David Barrett, Vermorken and chief financial officer Garth Palmer bought in.

In total, SigmaRoc expects to spend £47mn but will raise around £9mn through the sale of three non-core assets — two pieces of land and a mill. The remainder will be provided by “further internal resources”, the company said, but pledged not to take its leverage above two-times cash profit (Ebitda).

It intends to spend around £39mn on 10 acquisitions, including some quarries and construction materials firms, and a further £8mn on organic expansion projects including a carbon capture facility and converting kilns to run on biofuels.

The combined effect of this spend will be an addition of around £42mn in annualised revenue and £10mn of Ebitda, the company said.

Its record of delivery in a difficult market should reassure investors. It has yet to publish 2022 financial results but has already given guidance that like-for-like revenue grew by 19 per cent to £525mn and that underlying earnings per share will increase by more than 40 per cent to at least 7.7p.

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