The market’s reaction to insulation specialist SIG declaring its first pre-tax profit since 2018 was muted, to say the least.
The shares slid by 5 per cent on the day to 40p, leaving them flat over the course of the past year. Its current valuation of 13 times earnings is well below its five-year average of 20.5-times, although this may not be the best metric on which to value the company given the meagre amounts of profit that has been squeezed out during that period. The same could be said for cashflows, although SIG has been consciously spending more in a bid to rebuild margins.
After tapping investors for £165mn in 2020 in a deal which saw private equity firm Clayton, Dubilier & Rice take a 25 per cent stake (now 29 per cent), SIG began reinvesting in its UK distribution network and rehiring experienced managers who had left the business.
Though it has had to contend with weaker demand in the home improvement market, it increased its operating margin last year to 2.9 per cent, from 1.8 per cent a year earlier.
Gavin Slark, appointed chief executive in February after nearly 12 years at the helm of Dublin-based DIY group Grafton, reiterated a medium-term goal to increase its operating margin to 5 per cent “when markets recover”.
He bought £340,000 worth of shares last week. Although he needs to build his shareholding to 300 per cent of his base salary (£675,000 on appointment, according to the company’s annual report), he has five years in which to do so.
SIG’s shares have rallied strongly since the start of this year but still lag behind peers on most metrics. Clearly, Slark sees an opportunity in its recovery, but with dividend payouts on hold until the balance sheet improves (net debt is still 2.8-times cash profit) others will need more convincing.
Record’s Record deal
Often, it is the need to generate cash to cover tax bills that motivates the greater part of large share sales, but sometimes philanthropy also gets a look-in. Neil Record, the chairman of Record, a forex trader and derivatives manager, announced the philanthropic gift of 2mn shares, worth 91p a piece, to Record’s employee benefit trust (EBT).
Record said the shares would be warehoused with the trust and sold in tranches, via Record’s broker Panmure Gordon, to fund educational scholarships. The EBT has funded the first 12 recipients who will receive substantial support throughout their whole school careers.
The shares have performed adequately over the past five years and would support a chunky sale.
The sale, while it may worry shareholders in the short term, looks more like a valedictory lap for Record, who served as chief executive of the company until 2010 after founding it in 1983, and who is due to step down as chairman at the AGM in July.
Chairman-elect is David Morrison, current chairman of CPP Group and a long-time director and investor in various venture capital companies and funds.
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