In a first half trading update specialist building materials supplier SIG (SHI) says it expects to hit full year expectations but adds that it ‘will continue to monitor how trading conditions develop’.
This tentativeness is unsurprising given the scale of the deterioration in trading in its UK operations and prompts a 6% fall in the shares to 124.4p.
That values the FTSE 250 company at about £735m.
SIG reports a 3.8% like-for-like decline in revenue in the first six months of its financial year. This encompasses a 12.7% like-for-like decline in the UK and a 3.3% advance in mainland Europe.
The company, which focuses on areas like roofing and insulation, will report first half results in full on 6 September. All eyes will be on commentary on current trading at that point with a second half recovery required if the company is to avoid warning on full year earnings.
AJ Bell investment director Russ Mould says: ‘Investors got further insight into the dire state of the UK construction sector this week as a first half trading update from building products business SIG revealed a double-digit decline in like-for-like revenue for its domestic operations.
READ MORE ON SIG HERE
‘The news from company follows on from figures earlier this week which showed that June was the worst month for the industry since April 2009, as well as several recent warnings from other construction-related firms.’
WILL SELF-HELP BE ENOUGH?
SIG is engaged in ‘self-help’ measures to try and protect its margins but as Mould cautions, ‘while cutting your cloth accordingly in lean times is a prudent approach, it has to be balanced against taking out too much capacity.
‘Many potential customers are in ‘‘wait and see’’ mode as they await any kind of clarity on Brexit. Should this be forthcoming, there could be a flurry of work as wheels crank back into motion. Suppliers like SIG are therefore in a tricky place.’
‘The trading update points to a clear deterioration in trading in the UK in Q2,’ says Canaccord Genuity analyst Aynsley Lammin.
‘Like-for-like sales in the UK remain very weak and have clearly worsened during May and June.
‘Wet weather may not have helped as well as a tougher comparative but recent PMI data suggests underlying trading has deteriorated. Europe looks stable with a bounce back for France in May and June, after a difficult start to the year.
‘At this point management expects to deliver full year profit expectations, "but will continue to monitor how trading conditions develop". It looks like the first half/second half profit split would be circa 36% and 64% in order to meet the consensus pre-tax profit of approximately £86m, which looks demanding given trading in May and June.’