SigmaRoc – a winner in the making?

SigmaRoc has been doing a lot better than anticipated and revenue and profit estimates could need to be upwardly readjusted, writes Mark Watson-Mitchell. 

As the building and construction sector bounces back into life after the Covid-19 lockdown, it is becoming evident that a number of companies trading in that sector have not been doing as badly as feared.

Certainly, the way the housing property agents have been reporting it seems as though the prices are driving higher and demand is increasing.

That means that suppliers within the market are having to respond quickly to the competitive criteria that have developed.

Over the next few weeks we will see a number of quoted materials suppliers reporting their results for the lockdown half year, while balancing any fall-backs with statements of filling order books in the second half.

There are a lot of smaller companies that do not yet have high profiles despite the value of their businesses.

One such company that has recently grasped my attention is SigmaRoc (LON:SRC), the AIM-listed ‘buy and build’ construction materials group.

On Tuesday of this week the company announced that it had agreed to acquire full control of GDH, a South Wales based quarrying group. The deal, which is earnings enhancing, should be completed later this month.

GDH is a major quarrying, asphalt, concrete and contracting business located in South Wales. It operates 17 production facilities, including seven hardstone quarries, six concrete plants, three asphalt plants and a wharf operation, as well as four road contracting units.

This acquisition is just part of the group’s programme of seeking out suitable business purchases across the UK and Belgium.

From an effective shell in 2016 the company was established with the aim to build a competitive construction materials group.

It is a company that invests, improves and integrates businesses within the construction materials space in Europe. SigmaRoc’s management understands that the construction materials industry is a local industry where investors, customers, suppliers and communities are best served by efficiently preserving, strengthening and improving local businesses.

It looks to create value by purchasing assets in fragmented construction materials markets and extracting efficiencies through active management and by forming the assets into larger groups. It targets both the up and down stream heavy construction materials sectors, such as operating assets, value added products and services, associated infrastructure and supply chain.

Its subsidiaries include Ronez Limited, supplier of building materials and services in the Channel Islands; SigmaPPG, which has locations in London, the Midlands and the east of England, trading through Topcrete and Poundfield Products Ltd. Carrières du Hainaut (CDH) is the cornerstone of its Benelux platform, which comprises operations at CDH and Stone Holdings.

Over the last four years it has acquired seven different businesses, specialists in their own local areas – with the purpose of investing in them to improve their earnings and integration into the larger group.

There are 253.7m shares in issue. Large holders include M&G Investment (9.94%), Ravenscroft Investment (7.88%), Hermco Property (6.65%), BGF Investment (5.77%), Henderson Global (5.06%), Slater Investments (5.00%), Legal & General Investment (4.99%), Chelverton Asset (4.33%), Nigel Wray (4.21%), and Canaccord Genuity Wealth (3.74%).

This coming Monday 7 September will see the expanding group announce its interim results for the half-year to end-June. Brokers Liberum Capital are bullish about the company. They are looking for interim revenues of £54.5m and EBITDA of £10.9m, coming out at an operating margin of 20%.

Liberum were going for full-year sales of £91m (£70.4m) with pre-tax profits coming in lower at £6.1m (£8.2m). However, after the recently declared trading update, they have held back on upping their figures until next Monday’s statement.

I consider that the group has been doing a lot better than anticipated and revenue and profit estimates will need to be upwardly readjusted.

The group’s shares, at 49p, may well be trading on higher than sector averages but I do feel that its ‘modus operandi’ is shrewd and this company is well based and has significant prospects.

I now set a 65p target price.