SigmaRoc — Diversified model supports H122 growth

SigmaRoc (LSE: SRC)

Last close As at 28/02/2024

GBP0.64

−0.20 (−0.31%)

Market capitalisation

GBP712m

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Research: Industrials

SigmaRoc — Diversified model supports H122 growth

SigmaRoc’s (SRC) progressive M&A strategy and geographical diversification continues to pay off, with H122 revenue growth of 17%, on an adjusted like-for-like basis, to £247m. In spite of ongoing headwinds, the company is seeing persistent demand, which is well spread in terms of end-markets. SRC trades on an FY22e P/E of 5.7x, at a comfortable discount to its prospective average of c 11x over the past five years and at the lower end of a peer group of companies with similar exposures.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

SigmaRoc

Diversified model supports H122 growth

Industrials

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3 October 2022

Price

37.7p

Market cap

£246m

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Share details

Code

SRC

Listing

AIM

Shares in issue

638.25m

Business description

SigmaRoc is a specialised quarried materials group that invests in both new and existing construction material assets across Europe. The extracted low- and high-grade materials are sold for use in agriculture, construction, environmental and industrial applications.

Bull

Consistent solid demand for underlying products.

Geographically diversified.

Aggressive ESG roadmap in place, with net zero target by 2040.

Bear

Inflationary headwinds will continue to cause input cost increases.

Potential project delays remain due to global supply chain issues.

Relatively high gearing poses a risk due to rising interest rates.

Analysts

Andy Murphy

+44 (0)20 3077 5700

Natalya Davies

+44 (0)20 3077 5700

SigmaRoc’s (SRC) progressive M&A strategy and geographical diversification continues to pay off, with H122 revenue growth of 17%, on an adjusted like-for-like basis, to £247m. In spite of ongoing headwinds, the company is seeing persistent demand, which is well spread in terms of end-markets. SRC trades on an FY22e P/E of 5.7x, at a comfortable discount to its prospective average of c 11x over the past five years and at the lower end of a peer group of companies with similar exposures.

Interim results showed continued momentum

SRC delivered growth and maintained margins despite rising materials prices and energy costs in H122. The benefits of the Nordkalk acquisition were demonstrated by total revenue growth of 192% to £247m compared to H121, or 17% like-for-like. Underlying EBITDA rose by 6% on a pro forma basis to £48m, benefiting from cost pass-through mechanisms, dynamic pricing and cost control. The group continued to generate cash and, following the Johnston acquisition, the H122 leverage ratio was 2.2x, comfortably below its covenant limit of 3.5x. The share price has taken a hit over the last year, but H122 results suggest investor concerns are unwarranted.

Expected earnings enhancement in H222

We should see an improved performance in H222; the strike at UPM in Finland has ended and seasonality means that SRC consistently earns more in H2. The JV with ArcelorMittal, agreed in September, is an indication that SRC’s capacity should continue to expand, generating improved returns in the long term (reflected in the consensus numbers). In Q321, SRC completed its largest ever acquisition of Nordkalk, the leading limestone company in Northern Europe, for a total consideration of €470m. The deal should be value accretive and has the potential to significantly drive earnings growth as it benefits from operational efficiency and cross-selling. We expect infrastructure spend will continue to be a focus for European governments. SRC should benefit from this, given its market position and the quality of its assets. During H222, management is likely to focus on integrating its acquisitions, maximising earnings and reducing debt.

Valuation: Discount relative to established peers

The company trades on a P/E of 5.7x in FY22e, which is a comfortable discount to its average of c 11x over the past five years. It is at the lower end of a peer group of companies with similar exposures, which average a P/E of 8.7x. Since inception, SRC has had minimal net debt with a history of paying it down quickly. Despite the large acquisition of Nordkalk in mid-2021, at the end of H122 net debt/EBITDA was reduced to 2.2x and analyst consensus suggests this will fall to 1.5x at end FY23.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/20

124.3

12.2

4.2

0.0

9.0

N/A

12/21

272.0

27.8

5.0

0.0

7.5

N/A

12/22e

510.0

57.2

6.7

0.0

5.6

N/A

12/23e

528.9

60.5

6.9

0.0

5.5

N/A

Source: Company reports, Refinitiv

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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