Reporting its 2016 results this morning, SigmaRoc Plc (LON:SRC) flagged a solid start to 2017 from its Ronez vertically-integrated aggregates business on the Channel Islands, the acquisition of which post-dates the reporting period. Q1 2017 EBITDA is reportedly 12% higher compared with that achieved by Ronez in Q1 2016, suggesting tangible progress is being made by SigmaRoc on unlocking operational and trading efficiencies since taking control of the business at the start of the year. We remain confident the group can generate EBITDA at the Ronez-level of >£6m pa going forward (up from £4.9m in 2016). Having successfully integrated Ronez, management is now sharpening its focus on executing the next stage of its niche asset ‘buy-and-build’ strategy. Leveraging management’s vast experience in the construction materials industry and Ronez’ robust cash-flow base, we expect SigmaRoc to roll out more acquisition and/or organic investment opportunities as the year progresses, which should be a catalyst for further share price appreciation.
Smooth Ronez integration facilitates strong start to 2017: SigmaRoc only took control of Ronez at the turn of the year, and thus its own 2016 financial results reflect its prior life as a shell company. However, the Chairman’s statement reports that, under previous owner LafargeHolcim, Ronez generated an EBITDA margin of 20% in 2016 (revenue £24.4m, EBITDA £4.9m), a solid performance given slow trading conditions in Guernsey. Since SigmaRoc took ownership it has implemented key operational and reporting changes at faster pace and at lower cost than management had anticipated, and this is reflected in an even stronger performance in Q1 2017 – group-level EBITDA is 12% ahead of Q1 2016 (the actual EBITDA figure was not disclosed). With the trading outlook for the rest of the year described by management as “positive” (particularly in Jersey), we are confident our 2017 estimate of over £6m EBDITA at the Ronez-level (i.e. before group-level corporate costs) can be achieved.
Valuation metrics: SigmaRoc is trading at an EV/EBITDA ratio of c10x based on our 2017 forecasts (which reflect Ronez steady-state going forward), a discount to the current (2016 EBITDA) sector average of c12x. We consider this undemanding based on Ronez only, notwithstanding the potential of SigmaRoc’s growth pipeline (other high-growth peers in the sector trade above the 12x average). With Ronez now successfully integrated into SigmaRoc, we expect management to refocus its attention on executing the next stage of its buy-and-build strategy. Though small, the recent investment in bulk shipping facilities is a demonstration of its ability to access and transact deals at value-adding metrics (£0.55m was paid for assets which SigmaRoc estimates will add over £0.2m pa to operational EBITDA). We expect further, potentially more significant growth initiatives to be rolled out as the year progresses.
