- SIG downgrades full year profit to lower end of market expectations
- Implies 12% lower profit as demand weakens
- Uncertain timing of recovery
Building materials group SIG (SHI) lowered full year guidance for underlying operating profit to the lower end of current market expectations implying a 12% downgrade.
The shares fell roughly in line with the downgrade dropping by a tenth to 31p taking the loss over the last two months to 29% and back to where they were trading in November 2022.
The soft trading outlook had a knock-on effect across the building materials and home improvement sector with Travis Perkins (TPK) and Wickes (WIX) falling over 2% apiece.
Travis Perkins issued its own full year profit downgrade on 16 June after highlighting persistently higher than expected inflation impacting demand and high interest rates.
WHAT DID SIG SAY?
The specialist supplier of insulation, roofing, and exterior products to the construction sector highlighted a ‘notable softening in demand in France and Germany’ over the last couple of months.
Meanwhile, volumes and market conditions were notably weaker in Poland and Ireland over the six months to 30 June.
Consequently, the board expects underlying operating profit to be at the lower end of market expectations which ranges from £65.3 million to £84 million. Company collated consensus sits at £74.2 million.
Since the start of the year consensus 2023 EPS (earnings per share) estimates have fallen by around a quarter and 2024 estimates are 15% lower. Today’s downgrade implies further downward estimate revisions.
NO INSULATION FROM BLEAK MARKET OUTLOOK
SIG, which is the European market leader in the supply of specialist insulation, expects ‘weak and uncertain’ demand conditions to persist for the rest of the 2023. The revenue tailwind from input price inflation is expected to moderate.
On a more positive note, the company said the second half is expected to benefit from ongoing productivity initiatives as well as a profit on one specific property move.
For the six months to 30 June revenue was £1.42 billion, flat on a like for like basis after volume declines offset input price inflation. UK revenue inched up 2% to £602 million while European Union revenue was 1% lower to £822 million.
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