Sig Share Discussion Threads

[dobcroft] 14/7/2008 15:40

Now down 8%!

[dobcroft] 14/7/2008 12:40

Every single quoted building materials company on my stockwatch is doing very well today, except this one. Down 6%. Has the market has been spooked by the trading statement?

[cleott] 11/7/2008 10:00

When and if a downturn in commercial property hits, hopefully Gordon's purge for more new social/affordable housing will take off. Look a Taylor Wimpey's bounce today can it last??

[daihardtoo] 11/7/2008 09:04

When it hits, the downturn in the commercial property market will be deeper and more prolonged than the downturn currently hitting the house-builders.

It will be the new retail parks/office blocks that are not being designed & contracted for now, that will hit turnover to this sector over the next 2-3 years. Projects in-progress will probably be completed.

Over this period, cash is king.
I am sure that SHI are fully aware of this & will be planning accordingly.

[dobcroft] 11/7/2008 08:46

I think the point being made are that SHI have been keen to state that Taylor Wimpey etc are not their big customers, they have been keen to stress that residential construction is only 1/3 of their sales, and that they are somehow different to Travis Perkins etc. But like for like sales growth of 2.2% compared with Travis Perkins 3.0% indicates they are exactly the same.

I think a p/e ratio between 4-8 is fair at the moment, but I am now puzzled by the x2 premium to Travis.

[daihardtoo] 11/7/2008 00:00

Considering the well publicised downturn that has been experienced by their big customers (eg. Taylor Wimpey), to still be reporting year-on-year growth in the current market is astounding.
Forget inflation - demand in the sector has slumped and their sales have grown. That indicates good market share growth.

I read each post by KingL with an open mind, and he makes some very good, thought provoking points which help me come to a balanced judgement.

There are elements of his posts that I totally disagree with - and it seems that we will never see eye-to-eye on those points.

Having been on the 'receiving end' of an SIG acquisition, I have certain views - and there are certain aspects of their process that I feel that it would be inappropriate to post on here.
I have stated that I felt that they seemed to be spreading their 'integration resource' quite thinly, but the were other aspects during the DD process which were extremely impressive.

The recurring theme of goodwill is one that I know that KL & I will never agree on, but I think that it is worth pointing out that under IFRS, goodwill is not amortised. It would not surprise me if they record an impairment charge against some goodwill in Ireland, but from the 'spin' that they put onto the rest of the numbers, I would be surprised if there are any other material writedowns.

[kingl] 10/7/2008 21:45

If you're tucking them away you should be okay, but expect a bumpy ride.

Of course you know that Saint-Gobain has been linked with SIG for some time, but remember that their share price is just as shattered as it's UK peers and their balance sheet is 80% geared. Their approach to acquisitions will be just as "cautious and highly selective" and "materially lower."

Besides, they have effectively ruled themselves out of bidding for SIG now. Firstly by buying British Plaster Board where SIG has a high supply market share. Secondly, and effectively dismissing SIG forever, by starting Minster Insulation from scratch and growing it to 18/19 branches in a very short space of time.

[cleott] 10/7/2008 21:04

Can't argue with your logic, I am still tucking these away. Does Saint-Gobain ring a bell.

[kingl] 10/7/2008 19:22

It's me again .... and one more thing .... again from the trading statement ....

"Underlying profit before tax for the six months to 30 June 2008 is expected to be not less than £68m, an increase of £6m (c.10%) on the £62.1m reported in the first half of 2007."

An increase of £6m, that about the same as last year, but there's more goodwill this year. Here are the last 4 halves "other items" which need to be deducted from "underlying profits"

06H1 £1.8m
06H2 £3.8m
07H1 £5.9m
07H2 £9.9m
08H1 ????m

Spot the trend? What's the figure for 08H1? It's at least £9.9m, and even that would be a £4m increase. In fact it seems quite possible that the increase in goodwill and other items is going to be greater than the £6m increase in underlying profits.

Add to that the number of shares in issue have increased from 123 million to 135 million.

So has eps actually fallen?

[kingl] 10/7/2008 18:39

cleott,

I typed it all out myself during my lunch hour. No spellchecker or anything. It took the whole hour! LOL

As for takeover, which company is trading on sufficient premium to use it's own shares to buy SIG? Who would buy into that share issue anyway? Which company has a friendly bank manager willing to lend them £750m to buy £750m of intangibles, but with plenty of promises of future profits, honest?

It's no coincidence that M&A activity has slowed down to a stop.

Oh, and I said that their strategy was shot in an earlier post, but I failed to notice the admittance from the company itself this morning:

"In the current market environment the Group's approach to acquisitions is cautious and highly selective. Whilst remaining receptive to any attractive acquisition opportunities that the current environment may present, the Group
expects acquisition activity in the second half of the year to be materially lower than the first half, thereby helping to ensure that debt levels remain comfortable."

Not quite waving the white flag, but not far off. Of course it's the right thing to do, but I don't think they should have been buying so many companies over the last 5 years anyway.

[cleott] 10/7/2008 16:00

There is also the chance of a take out........!

[cleott] 10/7/2008 15:56

I do both, however, regardless what type I generally specify the large contractors always ask if they can use their normal product type especially the large roofing contractors. As the insulation values are very similar from product to product and just vary in thickness somewhat. The large SIG lorries always seem to turn up though !!

Commercial and Europe IMHO will keep this company ticking over in a very bad market, I think the share price tried to bounce today but sentiment again is against it, long term I can see good value. King L just above your fairly priced.

[m.t.glass] 10/7/2008 15:26

cleott - as an architect, do you specify SIG products by brand name? Or by genereric compliance with relevant standards? Most of my own architectural and QS contacts say the latter in relation to insulation - in which case SIG are in competition along with every other compliant supplier.

Some do specify certain other SIG products by brand, particularly those in which some site-specific design input is included.

[rafieh] 10/7/2008 15:11

Kingl,
Did you type all this, or did you cut and paste?
Lol,I am only joking.

[kingl] 10/7/2008 14:35

Daihardtoo,

To be critical of the management of a large quoted company is fair game imho. They want your money, and at the same time will be cautious with the truth. They will employ PR companies with shareholders money to help them be cautious with the truth. These same PR companies will produce hefty documents prior to analyst meetings, what the various analysts' marital status is , what school they went to, what questions they are likely to ask and how to avoid them. I know, I've seen it in action.

Always expect 'spin' from the directors of large quoted companies.

To accuse somebody of 'spin' in a thread like this is fair game if there is an agenda at play, which I accept there often is because people want a share to go up or down.

I'm neither long nor short, and even think the shares are within the band of fairly priced, so my agenda is purely academic.

I have always had a concern about companies like SIG that have grown quickly by acquisition. Research shows that most acquisitions fail. All the companies that I know that have exclusively developed this strategy have eventually failed.

Can we really think now that £14+ for the shares, or more to the point a PER of 24 was sensible? Of course not, but I didn't 12 months ago either. It concerned me that companies were being bought, not for their strategic fit, but simply because they were immediately earnings enhancing. (Ironically your post back in 92 sort of confirms it.)

Add in the fact that any new company bought on a PER of 5 immediately had it's earnings rated in SIG at 24, and it's no wonder that the brokers were rubbing their hands with glee. But they weren't taking account of the new RISK, that was my whole point. With each additional acquisition there was more risk, more goodwill, more debt, more gearing, less interest cover, the PER should be going down to reflect that. That is the point I have been trying to make.

But now we do have a lower PER of 6, and with the shares now valued more fairly I should be happy shouldn't I? Well I see another problem here, and the word is "spin." Now that might sound strong, but as I said they are fair game. Whilst I was pretty certain that a PER of 24 was way too high, I accept that I could be wrong with this, I don't have access to the numbers, but I have a hunch that it is "spin."

As I said companies that grow exclusively by acquisition always fail in the end. Something will always stop them in their tracks, and that thing is usually a recession.

Well everybody thinks SIG, along with TPK and the other building suppliers are in recession. SIG's shares have been marked down 70% from the highs, so the market thinks SIG market is in recession. So why, when you read their trading statements doesn't it sound like it? In particular listen to the video interview of 13 May, I've never heard SIG say anything so bullish. Why is this?

Well I put it to you that their strategy has run its course. The share rating is now too low to issue new shares, and banks are no longer lending without security. Promised future profits are not sufficient security anymore, and goodwill has never been sufficient security. I think they need to talk it up.

When I first glanced at the words this morning I thought they were going to bounce back 20%, but the numbers tell a different story to the "spin." Like-for-like sales growth of 10.9% in 2007, falling to 4.0% in the 4 months to April, falling to 2.2% in the 6 months to June is a recession. That's sales growth significantly less than inflation, and even less than TPK's last reported 3.0%, who even admit to being in a recessionary market.

Of course I am guessing, the numbers tell us very little, but what they do tell us is that they are in very much the same difficult markets that TPK and the others are operating in.

As for your little "wrong again" dig about my comments. My first comment was actually correct, and as for the second one that you think was wrong, the company has not yet raised any significant debt since I made that comment. The market is significantly different to when it was when the £175m was raised earlier in the year.

Phew, that's it from me now.

[kingl] 10/7/2008 09:22

Ooo, a challenge! Great, I'll see you later when I've got more time.

In the mean time, have a guess how much of the "underlying" increase in profits of £6m is actually going to feed through to actual profits after the increse in goodwill and interest.

[daihardtoo] 10/7/2008 08:58

KingL
The only 'Spin' that I can see is in your post.
When did you say that we should expect 'Spin'?

What you posted on 24th June was:
"Is the new guy going to say everything is wonderful in his first statement on 10 July? I doubt it, unless he only has plans on being in the position for a short while!"

Another gem in that post was:
"In the current environment, I very much doubt any bank is going to continue to lend this company money to "invest" in goodwill." - Wrong again.

In the current climate, the numbers posted here are very solid.
You don't understand their business model, so you continually go on about goodwill & intangibles being worthless and write-downs being required.

It is a fact that SIG are in a very difficult sector, but these numbers are nowhere near as bad as their competitors. Like you, I will study their balance sheet when it is published - but the key numbers in the current climate will be cashflow - not 'Net Assets minus Intangibles'.

[rafieh] 10/7/2008 08:12

I closed my short with a profit. I think it will remain above £4 for the time being.

[kingl] 10/7/2008 08:04

Spin exactly as expected, but don't believe the hype.

The 'lightly audited' like-for-like sales growth has been running at close to 10% in recent years. On 14 May they reported the first 4 months like-for-like growth had fallen to 4.0% (ie. real volume slightly behind last year) and now for the first 6 months it has dropped to 2.2%. Oh dear.

That's a horrible 2 months right there, another two like that and expect the spin to be less 'positive.'

I will study the balance sheet with interest when it is published.

[rafieh] 10/7/2008 07:26

Figures are probably not disasterous, but the market may not be comfortable with increased debt level:

"Net debt at 30 June 2008 is expected to be c. £640m (31 December 2007: £430m)."

In six months the debt has gone up by nearly 50%.

[eddie murphy2] 08/7/2008 23:50

Thanks for that. Any views on their attempts to move into Europe? I guess the general economic climate is not much different there.

[daihardtoo] 08/7/2008 17:15

Eddie - have a read of the announcement made by HYWD today.
Gives an indication of the problems facing companies that supply the building trade.
On top of that, there could be significant bad debt/cashflow exposures if some of the big builders go bust.

[eddie murphy2] 08/7/2008 16:22

O.k so if SHI has posted such good financials this year to date how come the share price is tanking. Is there something gloomy in the offing on Thursday? Not sure whether to hold on or get out. Any views appreciated.

[cleott] 07/7/2008 19:50

Actually I didn't buy, particularly as it fell through £5.00 so fast. I am still a buyer but will wait for Thursday, way oversold to me but with sentiment as it is I can not call this. I have been burnt on Taylor Wimpey thinking 65p was a low. Plus I keep reading KingLs post to stop me buying!!

[rabain] 07/7/2008 11:17

When is a bottom not a bottom? Hope you kept your finger off the button cleott. Tough times!