Morning Equity Briefing
SIG plc
SHI LN
2009 results due March 18th
Flor O'Donoghue
| Closing Price | 122p | Rating: | Outperform | 30/06/09 |
SIG provided considerable detail in its January 13th trading update; hence results for 2009 on March 18th should be uneventful. Detail provided on January 13th included estimated revenues in 2009, including the like-for-like sales result, underlying pre-tax profit guidance and forecast end-year net debt.
We adjusted our forecasts following the trading update and our 2009 estimates are consistent with SIG's guidance. Figures of note include:
Forecast revenues of £2.744bn, as per SIG's guidance;
Pre-tax profits before amortisation and exceptional items of £60.6m — SIG has suggested a result of 'not less' than £60m; and
End-2009 net debt of £263m — SIG has flagged net debt of c.£260m — with net debt/EBITDA estimated at 2.1x.
Our forecasts imply that SIG's revenues stabilised in the second-half of 2009 (up 4% on H1) as the rate of like-for-like sales decline moderated (from -17.5% in H1 to -13.6% in H2). The forecasts also suggest an improvement in SIG's trading margin in H2 to 3.7% (H2 2008: 5.9%), having fallen as low as 2.9% in the first-half. Overall, our estimates point to an 85% drop in earnings in 2009, also reflecting the dilutive impact of the equity-raising.
With the 2009 results already flagged to a significant extent, results day attention will focus on management's comments. Areas of interest will be its most recent thoughts on cost savings (SIG is now in implementation mode) and trading prospects, including the impact the recent bad weather had on trading (we suspect that SIG may be more affected than others due to its exposure to product categories such as roofing).
In mid-January, management said that a flat revenue result in 2010 was possible, although we are modelling a 4% decline. Our other core current forecast assumption is for a very modest (20bps) improvement in SIG's trading margin, reflecting the full impact of savings made last year. Evidence that such an outcome is on track should help the ongoing rehabilitation of the SIG story. The stock is cheap on the basis of a realisation of our medium-term EPS recovery scenario (20p by 2013).