Distributor of building products SIG (LSE: SHI) released a half-year trading update at 07:00 today, stating revenue from continuing operations increased 8.1%, with acquisitions contributing 5.3% and currency 0.5%.
The shares climbed as much as 6.5% to a new 52-week high of 155.4p half an hour into trading but fell back a bit after management issued a correction at 08:37, saying it was currency that contributed the 5.3%, while acquisitions contributed 0.5%.
Encouraging progress
Aside from the gaffe, the update was encouraging. SIG — which suffered a £120m loss last year due to heavy writedowns of assets — reported an improved performance in the UK, as it successfully passed on increased supplier price inflation to customers. Over in Europe, it said it’s benefitting from a recovery in construction markets.
SIG had relatively high net debt of £260m at the last year-end but said it expects this to be lower at 30 June, although it didn’t put a number on it.
Fully valued
At a current share price of 152p, the company trades on a forecast price-to-earnings (P/E) ratio of 15.8. This looks a full valuation to me and seems to price-in a successful turnaround of the business. I suspect market optimism is down to a boardroom overhaul, which saw the arrival of Meinie Oldersma — a highly regarded sector veteran — as chief executive in April.
However, I see little margin of safety for investors if the turnaround doesn’t go entirely to plan and/or if there’s a less-than-favourable outcome to Brexit, which the company says could impact on its “ability to conduct its business, or make the conduct of such business more expensive.”
Furthermore, I don’t see distributors like SIG as particularly attractive for investors at the best of times. Even before last year’s annus horribilis, the company’s fundamentals left a lot to be desired. For example, there was another lossmaking year in the previous four. And in the three that were profitable, the statutory net margin ranged between 1% and 1.4%. On the company’s “adjusted” numbers — which increased cumulative net profit of £83m to £256m — the highest margin posted in any one year was a still-uninspiring 2.9%.
On a forward P/E of 15.8 and a running yield of 2.4% (after a dividend cut last year), I’d be looking to cash-out if I held this stock.
Pricey property
Shares of Shaftesbury (LSE: SHB) are not far off their recent all-time high. This owner of an exceptional portfolio of real estate in the heart of London’s West End released upbeat results in May. While acknowledging the risks of Brexit, it said: “We expect the West End, underpinned by its wide appeal and dynamic economy, will maintain its long record of resilience.”
West End resilience shouldn’t be confused with share price resilience, because Shaftesbury’s shares more than halved in value during the financial crisis. How much should we be willing to pay for them today?
A lot less than the current 970p, in my view. The forward P/E is 53.2, the running dividend yield is 1.6% and the shares trade at a 6.4% premium to EPRA net asset value (NAV). This compares with peers Land Securities (P/E 19.7, running yield 3.8%, discount to NAV 28.7%) and British Land (P/E 16.6, running yield 4.8%, discount to NAV 34.1%).
Purely on valuation grounds, Shaftesbury is another stock I would be cashing-out of if I held it.
