Sunday, October 04, 2009

BAGAKOAA August 26 Request for input on SIG:LSE

SIG. That was hard for me to dig up info on. UBS just put a neutral rating on the company. Let’s look at the company itself:

SIG plc : insulation and roofing.Along with its subsidiaries, is engaged in the supply of specialist products to construction and related markets. The principal products supplied are insulation, roofing and external elements, commercial interiors and specialist construction and safety products. The Company operates in four segments: Insulation; Roofing and External Elements (R&EE); Commercial Interiors, and Specialist Construction and Safety Products (SC&SP). Some of its wholly owned subsidiaries include MacGregor & Moir Limited, which is engaged in the distribution of insulating materials and associated products; Drainex Limited, which is engaged in the distribution of roofing materials and associated products; General Fixings Limited, which is engaged in the distribution of specialist construction products; Branigan Interiors Limited, which is engaged in the distribution of commercial interiors products, and Buildspan Limited, which is engaged in the distribution of specialist construction products.

That is a funky sector to be looking at right now. Construction is in the toilette in the UK and will be until the residential market recovers and we figure out how bad the commercial market is going to get clobbered. Revenues peaked at 3.054 Billion pounds and tanked in 2008 and are tracking to 2.3 Billion in 09. Profits are targeted to be a negative 18.4 million pounds compared to a 33 million in 08.

Take a close look at the the numbers:

Look at profit before taxes 05-08. Peaked in 07 and not healthy since. Again this whole sector needs a recovery and it still at least 18 mons off.

Take a close look at the balance sheet especially non current liabilities (We call that LTD or Long term debt). You always want to know how long it will take a company to pay off its debt. Currently their LTD is tracking to 400 million pounds. Their expected profit (LOSS) is going to be about 20 million pounds. UGLY

Finally look at the cash flow. The number you want there is cash inflow from operations. As you can see they are some expecting a net profit of 2.7 million which is contradictory to the other financials (?). The have saved about 6 million in defined benefit proceeds which means they have laid off a bunch of folk. The result is their cash flow will be down at least 50 million pounds.

Normally about now I would be looking for another stock in that sector and looking for the best of breed in that sector. But the best of breed in this sector is still going to be a DOG. I would suggest you consider another sector. If you think the housing market is beginning to bottom in the UK, consider looking at home builders. Here is a list you could look at and see which might be traded on the LSE.

Hope this helps. Remember sometimes there is a reason why a stock is cheap. SIG had a PE ration of about 39. There is a reason. NCC and JW have PE ratios near 8.


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