Building products distributor SIG (SIH) is enjoying a relief rally today after a tough 2016 which saw its shares plunge almost 30%.

Profit in the second half of SIG's financial year is expected to fall between 27% and 38% but investors are relieved the company has not issued another profit warning and shares trade 10% higher at 103p.

Sales performance improved slightly in the final three months of 2016 are are now expected, on a like-for-like basis, to be flat versus the prior year.

PROFIT PLUNGE

'SIG's underlying pre-tax profits in 2016 will meet expectations,' writes Michael Mitchell at investment bank Davy.

'However, the bar was lowered considerably following a major profit warning in November and underlying second-half profits will fall by 27% to 38% year-on-year. It was also announced at the same time that SIG was seeking a new, external chief executive, a process that continues.

'With this uncertainty, it is difficult to construct a coherent investment case for the group, especially with the business facing multiple operating challenges. This is particularly the case in the UK, despite what are better organic revenue trends towards the end of the year.'

BAD YEAR

Chief executive Mel Ewell said 2016 had been a disappointing year for the company. Underlying profit-before-tax in the year to 31 December 2016 is expected to be £75m to £80m.

'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 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.'

CASH CONSERVATION

Ewell is looking to conserve cash, including by suspending SIG's acquisition programme, until net declines relative to earnings.

SIG's downbeat performance is in contrast to many other sub-sectors within the UK's construction and civil engineering markets. Brick maker Forterra (FORT) gained 2.8% to 185p today after reporting sales volume growth in November and December while equipment hire outfit Lavendon (LVD) said UK revenue grew 12% in the three months to 31 December, its biggest gains for at least a year.

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Issue Date: 13 Jan 2017