SigmaRoc PLC Strong H1 2017 results

SigmaRoc plc, (LON:SRC) the AIM listed buy-and-build construction materials group, announced today its unaudited interim results for the six months ended 30 June 2017.

Highlights:

* Operational results are stated before holding company costs, acquisition-related expenses, redundancy and reorganisation costs, property items, amortisation of acquisition intangibles and related tax items. Operational results are presented as the closest comparable on a like-for-like basis with Ronez in 2016. References to an operational profit measure throughout this announcement are defined on this basis.

Acquisitions:

· Successful acquisition of Ronez Limited (‘Ronez’), the Channel Island construction materials producer in January for £45m;

· Successful acquisition of a dry bulk carrier ship and the creation of SigmaGsy Limited (‘SigmaGsy’) shipping division in April 2017;

· Santander Term facility of £18m secured in addition to £2m revolving credit facility;

· Strong pipeline of target companies having reviewed 12 targets to date;

· Several targets currently between exclusivity and early analysis;

Integration & operations:

· Successful creation of back office infrastructure significantly ahead of time and budget;

· Delivery of key operational improvements in H1 2017, leading to a 52.6% operational EBITDA increase versus H1 2016 on a like-for-like basis;

· Successful launch of the Gold Card initiative for Safety and Operational reporting;

· Creation of share save scheme for colleagues at Ronez and SigmaGsy;

David Barrett, Executive Chairman, commented: “I am pleased to report a strong first half of 2017, with solid performances by both Ronez and SigmaGsy. This performance is all the more significant, given the challenges created by an ownership change, creation of a new back office and the addition of a new shipping division.

“I am also very pleased to see how our colleagues at Ronez have embraced their independence and helped us deliver these results. Ronez is, as we knew, a high quality business and an excellent example of SigmaRoc’s operating model in practice; buying a local business and improving its ability to perform in highly localised markets.

“Looking ahead, to the rest of the year and beyond, the Company’s prospects are positive. Demand for building materials in the Channel Islands, driven by several major projects, is expected to remain steady, while our efforts to find, acquire and improve local businesses has gained further momentum, now we have successfully integrated Ronez.”

Max Vermorken, SigmaRoc Plc CEO, commented: “The acquisition of Ronez and integration of our first business was a defining moment in our journey. The first half of this year was not without challenges, but the results to date show we are on track with the delivery of our strategy. As a team and as a business we are in a solid position to build on this first step and deliver further shareholder value, through future acquisitions and further operational improvement.”

John Bowater, CFO and Deputy CEO of Aggregate Industries, commented: “We are pleased to see that following the sale of Ronez to SigmaRoc, the transition of ownership has been smooth and successful. This is a real testimony to the ability of the team at SigmaRoc under the guidance of its Chairman and Chief Executive.”

SigmaRoc will host a meeting for invited analysts at 9.00 a.m. today and there will be a simultaneous conference call. The slides for the conference call are available for download on the company’s website. Please contact Ed Orlebar at Temple Bar Advisory for dial-in details.

Zeus Capital Comments:

SigmaRoc has delivered strong H1 2017 results, its maiden set of financials to incorporate its Ronez vertically-integrated aggregates business on the Channel Islands which was acquired at the turn of the year. Operational level EBITDA from Ronez was up by 53% vs H1 2016, reflecting improved trading conditions on Jersey but also efficiencies implemented by SigmaRoc since taking control of the business. Assuming no material downturn in trading conditions in H2, Ronez looks on course to meet our forecast operational EBITDA of c£6m (vs £5m in 2016). This would translate to £5m EBITDA at the corporate level, putting SigmaRoc on a 2017 EV/EBITDA multiple of just under 10x. The latter trails the construction materials peer group and, in our view, undervalues SigmaRoc’s above-average growth potential. Having successfully integrated Ronez, management is focused on the next stage of its niche asset ‘buy-and-build’ strategy – twelve opportunities have been reviewed to date, some now in exclusivity. Executing on these opportunities should be a significant catalyst for share price appreciation going forward.

Revenues up since taking control: Revenue rose by 12% to £13.1m vs Ronez-standalone in H1 2016, reflecting slightly improved trading conditions in Jersey (offsetting still sluggish conditions in Guernsey) but also contributions from the group’s recently-established shipping and trading subsidiary. Annualised, this puts SigmaRoc marginally (2%) ahead of our full year revenue forecast of £25.8m.

Wider margins testament to operational efficiencies: Margins benefited from post-acquisition efficiency improvements, resulting in a YoY 53% rise in operational EBITDA at the Ronez level (stripping out group-level holding costs and on-off items) to £2.9m. Annualised, total operating costs (before exceptional items) are slightly (3%) above our full-year estimates, but given our expectation that costs are somewhat H1-weighted (volume-driven changes aside), we believe SigmaRoc is on course to achieve our full-year group-level EBITDA estimate of £5.1m (from c£6m operational EBITDA at the Ronez level).

Growth pipeline progressing: With the Ronez acquisition thus successfully bedded down, management is sharpening its focus on growth opportunities. Twelve targets have been reviewed to date, some of which are now said to be at an “advanced stage”. We would expect further market updates on the progress of these growth pipeline initiatives over the coming months. 

Valuation metrics: SigmaRoc is trading at an EV/EBITDA ratio of 9.9x based on our 2017 forecasts (which reflect Ronez steady-state going forward), a discount to the sector average of 11.2x. We consider this an undemanding valuation, particularly given our expectation that growth initiatives will be rolled out over the next twelve months which could add materially to the EBITDA line further out.