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SigmaRoc makes major move into Belgium with CDH acquisition

Snapshot

  • Construction materials company with focus on the UK and Northern Europe
  • Taken a major step into Belgium with CDH acquisition
  • Opportunity to boost CDH's performance significantly
SigmaRoc quarry

Quick facts: SigmaRoc

Price: 45.5 GBX

AIM:SRC
Market: AIM
Market Cap: £115.45 m
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What SigmaRoc does

SigmRoc PLC (LON:SRC) is a construction materials company with a buy-and-build strategy focusing on assets in the UK and Northern Europe.

Founded in 2016, the firm looks to create value by purchasing assets in the fragmented construction materials market and forming them into larger groups to create efficiencies.

These assets are segmented into regional ‘platforms’,

 

What it owns

The company’s portfolio includes

Ronez: A concrete and asphalt firm based in the Channel Islands consisting of the St John’s Quarry in Jersey and Les Vardes Quarry and Vale Castle in Guernsey

Allen Concrete: A precast concrete product maker with plants in Surrey and Northamptonshire

Poundfield Products: Suffolk-based precast and prestressed concrete manufacturer

CCP Building Products: Supplier of concrete and aggregates (materials including sand, gravel and crushed stone). Has manufacturing facilities in North West England and North Wales

Foelfach Quarry: Crushed aggregate and stone quarry in Carmarthenshire, Wales, containing some of the home nation’s highest quality aggregate reserves. The quarry also produces high-polished stone, a valuable material for road surfacing

GD Harries (GDH): 40% stake in GDH, one of Wales’s largest independent suppliers of aggregates. Operates seven hardstone quarries, six concrete plants, three asphalt plants, a wharf operation and four road-contracting units

 

How it's doing 

Revenues in the half-year to June rose by 50% to £29.8 million, with underlying profits [EBITDA] 19% higher at £5.7mln. Pre-profits dropped to £1.42mln (£2.15mln) after a sharp rise in one-off costs.

In October, the business made a major move into Belgium with the acquisition of CDH, Europe's largest bluestone and limestone quarry.

The equity cost is €45.1mln, although including debt the consideration rises to €81.3mln.

CDH, which recorded €45.9mln in revenue and €12mln in underlying earnings in the year to 30 June, is expected to increase SigmaRoc’s earnings by a “double-digit percentage”.

SigmaRoc helped fund the acquisition through a  placing at 41p to raise £32.8mln.

Bluestone/CDH

Due to its high quality and distinctive characteristics, Bluestone is a Global Heritage Resource and a highly prized product that travels worldwide (unlike most aggregates).

Bluestone can be used in residential, commercial and infrastructure projects, as well as for architectural and cosmetic applications and its production from the quarry currently generates 100% of CDH's profit.

The 1.5m - 2m tonnes of limestone aggregate produced as a result of mining Bluestone each year is deemed by the current owners to be a waste product and is quarried under an unprofitable third-party agreement, which ends in 2022.

The site has 150 years of reserves remaining and 352ha of freehold land and minerals (subject to current consultation regarding an extension).

SigmaRoc said there is potential to improve sales by expanding CDH's existing market share in Belgium, France and Germany and selling Bluestone into new geographies, such as the UK and Scandinavia.

Subject to market conditions, a combination of increased efficiencies and expanding sales, CDH has the potential to increase EBITDA by up to €2 million progressively over the next 12 to 24 months.

Limestone/CDH

SigmaRoc believes there are two potential options significantly to improve the EBITDA of the aggregates business as a whole: Re-negotiate the third party contract or work the quarry itself, both of which will add to earnings from the quarry.

 

Inflexion points

  • Completion of CDH deal and substantial improvement in performance
  • The integration will give earnings a double-digit percentage lift
  • More acquisitions to bolster portfolio further

 

What the broker says

In a note in early November, analysts at SigmaRoc’s house broker Liberum said the acquisition of CDH offered the company a chance to build a “national Belgian business” and will boost earnings per share (EPS) by 20% as well as lifting earnings (EBITDA) by over 30%.

Liberum rates SigmaRoc at a 'buy' with a target price of 65p.

As of 15 November, the shares are trading at around 46.5p, giving SigmaRoc a market cap of £118mln.

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