On Friday, RBC Capital Markets adjusted its price target for SIG Plc (SHI:LN), a leading supplier of specialist building materials, from GBP0.29 to GBP0.22, while maintaining a Sector Perform rating on the stock.
The firm highlighted that SIG is positioned as a play on the recovery of the new build construction and repair, maintenance & improvement (RMI) markets, with the potential for internal improvements to drive performance.
The company's management has set a goal for an adjusted EBIT (earnings before interest and taxes) margin of 5%, a significant increase from the current estimate of around 1% in 2024 and above the long-term average of less than 3%.
Despite these targets, RBC Capital notes that SIG is expected to generate negative free cash flow (FCF) in both 2024 and 2025. This, combined with limited options for strengthening the balance sheet, may hinder the company's ability to expedite its turnaround through mergers and acquisitions.
RBC Capital also indicated that asset disposals by SIG are unlikely at present due to low points in the business cycle. Looking ahead, the firm anticipates a market recovery in 2025. However, it has reduced its adjusted EBIT estimates for SIG by approximately 10% due to expectations of lower like-for-like (lfl) growth and reduced earnings drop-throughs.
The revised price target is based on a discounted cash flow (DCF) analysis, which now stands at 22 pence per share. This adjustment reflects the current challenges and the tempered growth outlook for SIG Plc in the near term.
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