Supplier of specialist building materials to trade customers across Europe, SIG plc (LON:SHI) (SHI.L), has released a trading update today for the 2018 financial year.
The company has experienced challenging market conditions and lower trading revenues in the second half of the year, with December being a particularly tough month. However, it has been able to continue to deliver on its transformation goals.
Adjusted profit before tax for the year is expected to be around £75 million, which includes the benefit of between £2 million and £3 million in property profits. Revenues for the year decreased by 1.4%, with a further 0.7% decline resulting from unfavourable currency translation and an additional 0.2% decline coming from more working days. As a result, like-for-like (LFL) revenues for the year were down 2.3% on the previous year.
SIG’s strategy has helped to offset challenging trading conditions in some of its key markets. The company has delivered an improvement in its operational and financial performance in the second half of the year. It has focused on better pricing management, as well as the planned withdrawal from unprofitable businesses. This has caused some short-term pain in the form of reduced revenue, but could lead to improved profitability over the medium term.
Looking ahead, the company is aiming to continue to reduce debt. This is a sound strategy in my view at a time when the prospects for the wider industry remain challenging.
With SIG forecast to report a rise in EPS of 16% in the 2019 financial year, the company’s prospects appear to be improving. I feel that the changes it is making to its business model could lead to a stronger company which is better able to deliver growth over the medium term. Therefore, while potentially risky in the short run, the stock could offer reward potential over future years in my opinion.