 Zeus-
FY24 Results: rock solid FY24 results showed good progress both operationally and financially following the transformational acquisition of CRH’s European lime assets. Revenue increased 72% to £998m (-2% L4L), adj. EBITDA margins expanded 240bps to 22.5% and adj. EPS of 8.35p (+2.8% yoy) was 11% ahead of Zeus’ prior estimate. Management has indicated FY25 has started well and in line with expectations, leaving Zeus estimates broadly unchanged except a slight increase in capex. Despite macro headwinds across Europe, shares have outperformed the sector YTD (+29%), and Zeus believe there remains multiple catalysts to support this going forward. We also note today’s announcement confirming another €5m increase in minimum synergies to €40m by FY27, the refinancing of its bridge loan and the strong support for the placing of CRH’s 15% stake. Based on Zeus’ forecasts, SigmaRoc trades on 10.8x FY25E earnings and 6.0x EV/EBITDA. We reiterate our price target of 158p, offering 70% upside to the last close. What’s new? Zeus highlight 5 key points: 1) Management achieved €8m of synergies in FY24, with minimum synergies increasing another €5m to €40m by FY27. The incremental €5m is expected to be delivered in FY25, driven by a successful rationalisation of the German operations; 2) The refinancing of the bridge loan has completed, saving c. €3m of annualised interest costs; 3) The disposal of two non-core assets in Belgium and France completed at 7.0x LTM EBITDA, ahead of the Group’s current valuation, with c. €25m of remaining non-core EBITDA, all in the UK, still to go; 4) Construction end markets remain weak, impacting regions such as the UK, Germany and Belgium where SigmaRoc is more exposed; and 5) The year has started well and in line expectations, with volumes broadly flat yoy and pricing firm. FY25E is when it gets interesting; Zeus conservatively forecast low single-digit organic revenue growth: Zeus estimate incremental revenue growth of £94m (+9.5%) in 2025 to £1,092m, of which c. £50m (+5.5%) is annualisation of last year’s acquisitions (UK and Poland). The remaining £40m (+4.0%) is organic, which we expect to be price driven with volumes only slightly up. Further down the income statement, we expect a 20bp EBITDA margin expansion to 22.7%, driven by synergies implemented through the year and a mix shift towards higher margin lime markets, albeit we see scope for upside. We continue to expect leverage to fall to 1.7x (FY24: 2.1x), slightly ahead of consensus. With FY25 being the first full year of CRH contribution, it remains a pivotal year for SigmaRoc to show the benefits of lime from reduced cyclicality to higher margins and thus higher through-the-cycle returns. Whilst execution risk remains, catalysts are plentiful: Recent catalysts have underpinned a strong YTD share price performance (+29%), driven by strong support for the placing of CRH’s 15% stake, a positive full year trading update and the announcement of a potential €500bn German infrastructure package. Zeus argue other catalysts remain without a need for markets to improve, and the minimum increase in expected synergies announced today is testament to this. Additional catalysts should come from a faster reduction in leverage to sub 1.5x, driven by further divestments of noncore assets (c. €25m of EBITDA remaining) and, over the longer term, a multiple rerating as the market comes to appreciate the quality of lime assets SigmaRoc holds in Europe in duopolistic markets. On debt reduction, we believe the impact could be two-fold; achieving 1.5x leverage should lead to a transfer of value from debt to equity of c. £120m over the next 12-18 months and meet the important capital return threshold, opening the door for buybacks and/or dividends notwithstanding any major M&A. Valuation attractive; PT unchanged at 158p. SigmaRoc trades on 10.8x forward earnings and 6.0x EV/EBITDA versus long run averages of 12.5x and 7.8x, respectively. Considering the improved asset quality, recent disposal of the lower margin noncore ready-mix concrete assets for 7.0x LTM EBITDA, quick deleveraging supporting a debt-to-equity transfer, higher through-the-cycle returns of lime and potential benefits from German stimulus, we believe the market is failing to reflect the positive medium term outlook for SigmaRoc. Based on a threestage valuation encompassing a DCF, peer multiples and FCF yield, we reiterate our price target of 158p, offering 70% upside to the recent close. |
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