SigmaRoc Plc (LON:SRC) has delivered strong H1 2017 results, its maiden set of financials to incorporate its Ronez vertically-integrated aggregates business on the Channel Islands which was acquired at the turn of the year. Operational level EBITDA from Ronez was up by 53% vs H1 2016, reflecting improved trading conditions on Jersey but also efficiencies implemented by SigmaRoc since taking control of the business. Assuming no material downturn in trading conditions in H2, Ronez looks on course to meet our forecast operational EBITDA of c£6m (vs £5m in 2016). This would translate to £5m EBITDA at the corporate level, putting SigmaRoc on a 2017 EV/EBITDA multiple of just under 10x. The latter trails the construction materials peer group and, in our view, undervalues SigmaRoc’s above-average growth potential. Having successfully integrated Ronez, management is focused on the next stage of its niche asset ‘buy-and-build’ strategy – twelve opportunities have been reviewed to date, some now in exclusivity. Executing on these opportunities should be a significant catalyst for share price appreciation going forward.
Revenues up since taking control: Revenue rose by 12% to £13.1m vs Ronez-standalone in H1 2016, reflecting slightly improved trading conditions in Jersey (offsetting still sluggish conditions in Guernsey) but also contributions from the group’s recently-established shipping and trading subsidiary. Annualised, this puts SigmaRoc marginally (2%) ahead of our full year revenue forecast of £25.8m.
Wider margins testament to operational efficiencies: Margins benefited from post-acquisition efficiency improvements, resulting in a YoY 53% rise in operational EBITDA at the Ronez level (stripping out group-level holding costs and on-off items) to £2.9m. Annualised, total operating costs (before exceptional items) are slightly (3%) above our full-year estimates, but given our expectation that costs are somewhat H1-weighted (volume-driven changes aside), we believe SigmaRoc is on course to achieve our full-year group-level EBITDA estimate of £5.1m (from c£6m operational EBITDA at the Ronez level).
Growth pipeline progressing: With the Ronez acquisition thus successfully bedded down, management is sharpening its focus on growth opportunities. Twelve targets have been reviewed to date, some of which are now said to be at an “advanced stage”. We would expect further market updates on the progress of these growth pipeline initiatives over the coming months.
Valuation metrics: SigmaRoc is trading at an EV/EBITDA ratio of 9.9x based on our 2017 forecasts (which reflect Ronez steady-state going forward), a discount to the sector average of 11.2x. We consider this an undemanding valuation, particularly given our expectation that growth initiatives will be rolled out over the next twelve months which could add materially to the EBITDA line further out.
