SigmaRoc (LON:SRC) has successfully navigated a challenging market, delivering strong results for FY24, as highlighted in Zeus Research’s latest update. The company’s strategic execution, resilience, and ongoing portfolio optimisation have led to profitability and earnings outperforming expectations, reaffirming an investment case.
Executing on Strategy Amid Market Headwinds
Despite a tough European construction market, particularly in Germany, SigmaRoc has demonstrated remarkable resilience. Proforma revenue for FY24 declined by only 2% on a like-for-like basis, improving from a 4% drop in Q3 and an 8% decline in H1. This positive trend showcases the company’s ability to sustain growth even in difficult conditions.
Zeus Research has increased its FY24 EBITDA estimate by 1% to £223 million and adjusted EPS by 10% to 8.3p, reflecting SigmaRoc’s outperformance. The company’s divestment of non-core concrete assets in France and Belgium for €49.5 million, with €37 million already received, has also strengthened its balance sheet, reducing net debt estimates to £508 million from £532.2 million.
A Transformative Year with More Upside Potential
The acquisition of European lime businesses in FY24 has significantly enhanced SigmaRoc’s scale and asset quality. With FY25 marking the first full year of ownership, Zeus forecasts revenue of approximately £1.1 billion, EBITDA of £250 million, and pre-tax profits of £140 million.
According to Zeus, cost synergies could exceed the current €60 million guidance, with the lower end of the range already increasing to €35 million from €30 million. Additionally, refinancing the bridging loan later this year could result in significant interest savings of up to €10 million, while further divestments could accelerate debt reduction.
Improving Profitability and Market Position
Although market conditions remain difficult, SigmaRoc’s financial performance continues to strengthen. The company reported a 4% reduction in proforma like-for-like volumes, but revenue fell by only 2%, indicating the positive impact of pricing strategies and improved business mix. More importantly, proforma EBITDA grew by 2%, with margins expanding by 220 basis points to 22.3%, reinforcing management’s confidence in maintaining margins above 20%.
Valuation Undervalues SigmaRoc’s Earnings Quality
Despite its improved fundamentals, SigmaRoc’s current valuation fails to reflect its higher earnings quality. The company trades at just 5.0x EV/EBITDA and 8.2x earnings for FY25, significantly below historical averages and recent transaction multiples. Zeus highlights that SigmaRoc’s position as a duopoly player in major European lime markets enhances its competitive advantage and long-term value proposition.
Zeus remains bullish on the stock, maintaining its BUY recommendation and a 158p target price, implying a substantial 116% upside from the current share price of 73p.
In Summary
SigmaRoc’s ability to execute its strategy effectively, improve margins, and reduce debt underscores its strong investment case. With continued operational efficiencies, potential cost synergies, and further deleveraging, the company is well-positioned for sustainable growth in FY25 and beyond.
Zeus Research’s confidence in SigmaRoc remains unwavering, highlighting its attractive valuation and significant upside potential.
