New Holding: SigmaRoc

SigmaRoc (SRC.L, AIM All-Share, Market Cap £115m, 47p, 2.5% of JIC Portfolio and 0.0% of JIC Top 10)

New holding; SigmaRoc PLC

SigmaRoc is an AIM-listed company in the construction materials sector. It pursues a buy-and-build strategy in the European construction materials market. It says “It seeks to create value by purchasing assets in fragmented construction materials markets and extracting efficiencies through active management and by forming the assets into larger groups. It targets both the up and downstream heavy construction materials sectors, such as operating assets, value-added products and services, associated infrastructure and supply chain. Its subsidiaries include Ronez Limited, supplier of building materials and services in the Channel Islands; SigmaPPG, which has locations in London, the Midlands and the East of England, trading through its entities of Topcrete, and Poundfield Products Ltd.

For more information, its website is HERE

It was founded by David Barrett, Executive Chairman, and Max Vermorken, CEO in 2016. David Barrett has experience of building a successful company, having spent 40 years in the sector and co-founding London Concrete in 1997. London Concrete was sold to Holcim and is the number one concrete supplier in London. Vermorken was a strategic advisor to the CEO of LafargeHolcim Northern Europe.

Earlier this week it successfully raised £32.8m through a placing of 79.9m new shares at 41p per share, increasing its market capitalisation by around 50% to C. £116m.

It raised the money to buy CDH Développement SA (“CDH”), a Belgian blue limestone and aggregate business. It has 150 years of life. It is paying 6.8x CDH’s underlying EBITDA for the twelve-month period ending 30th June 2019 and is expected to be double-figure accretive to earnings.

More details from the announcement:

The consideration for the Proposed Acquisition is, in aggregate, €45.1 million. In addition, net debt of €36.2 million as at 30 June 2019, comprising existing senior third party bank debt with local lenders, will remain in CDH. The consideration of €45.1 million, will comprise initial consideration of €29.1 million (the “Initial Consideration”) and deferred consideration of €16.0 million in cash, with €2.0 million to be paid on the first anniversary of completion of the Proposed Acquisition (the “First Anniversary”) and €14.0 million to be paid on the second anniversary of completion of the Proposed Acquisition (the “Second Anniversary”) (the “Deferred Consideration”).

The Company intends to raise gross proceeds of approximately £32.8 million through a placing of 79,921,640 new ordinary shares of 1p each in the capital of the Company (“Ordinary Shares”) (“Placing Shares”), at a price of 41 pence per share (the “Placing Price”) (the “Placing”). The Placing is to be effected by way of a cash placing and a vendor placing. £25.8 million (€29.1 million) of the proceeds raised will be used to fund the Initial Consideration and the balance will be used by the Company for future investment opportunities and general working capital.

Before the deal, forecasts were for earnings per share of 4.1p in 2019 and 4.61p in 2020. ShareScope even has a forecast for 2021 of 5.1p. I’m going to add 10.0% to 2020 and 2021 forecasts to take account of this week’s acquisition. That gives 5.1p in 2020 followed by 5.6p in 2021. At 47p, by my calculations the shares are on a 2020 PE ratio of 9.2x, falling to 8.4x in 2021.

Barratt and Tim Hall (NED) participated in the placing, in aggregate, spending £261,500. Furthermore, Vermorken bought 45,528 shares at 43.9p in the open market yesterday. The CFO, Garth Palmer also bought 45,761 at 43.62p and Charles Trigg, (another founder of the company and presently Technical Director) bought 22,547 at 44.35p.

The shareholder list looks good with M&G, Legal & General, Slater Investments, Nigel Wray and Polar Capital listed as shareholders before Monday’s placing.

In conclusion; an experienced management team, building a company in a sector where they have huge experience. The valuation looks attractive on a PE ratio of 9.2x 2020 earnings falling to 8.4x in 2021. I think the shares will benefit from a re-rating as the story becomes better known and from earnings upgrades as it completes further deals. I have given it a rating of Medium Risk/Medium Return suggesting a 2.5% weighting. I will start with 2.5% but hopefully, as I get to know the company better, I might be able to change the risk rating to Low.

I paid 46.6p for 24213 shares giving a 2.5% weighting in the JIC Portfolio.

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