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SIG shares in the red as revenues hit by tough construction market

SIG believes its restructuring plan will lead to a “significant increase” in 2019 profits
Demand was dampened by Brexit uncertainty and a slowdown in the housing market

Building materials firm SIG PLC (LON:SHI) expects 2018 profits to fall on lower trading revenue amid a challenging UK construction market.

In a trading update, the FTSE 250-listed company said it estimates it will report adjusted pre-tax profit of £75mln, including property profits, for 2018, down 5.3% from the £79.2mln posted a year ago. The consensus market forecast for pre-tax profit was £76mln. 

Total like-for-like revenue fell 2.3% in the year, led by a poor performance in the UK and Ireland segment.  

Like-for-like revenue in the UK and Ireland dropped 5.7% as demand for commercial construction was dampened by Brexit uncertainty and a slowdown in the housing market.

In mainland Europe, like-for-like revenue increased 0.7% as growth in Poland, the Air Handling arm and Benelux business offset declines in France and Germany.

The company delivered a 0.2% rise in like-for-like revenue in the first half but the second half saw a 4.7% decline as construction markets across Europe slowed, particularly in France and Germany. 

READ: SIG remains confident of delivering in line full-year results in spite of continuing challenging market conditions

SIG is taking steps to turn around the business and believes the plan will lead to a “significant increase” in 2019 profits.

"The focus on better pricing management and the planned withdrawal from unprofitable business has reduced revenue in the second half of 2018, but increased gross margins above our expectations," the company said.

"Falling headcount has contributed to reduced operating costs as planned. 

"Following leadership changes and the restructuring of the business model across the group's major operating companies, the foundations are in place for further strong progress in 2019, focused on our strategic levers linked to customer service, customer value and operational efficiency."

Liberum maintained a 'buy' rating and target price of 157p, saying it believes the company's plan to improve margins are credible with progress underway. 

Shares fell 4.1% to 11.8p in morning trading.

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