SigmaRoc LON:SRC, the AIM-listed building materials company published its results this morning (27th March).
The company, which is headquartered in London, is literally at the rock face of the building and construction sector, in that it manages quarries in 12 countries supplying a range of materials to the trade including: limestone, aggregate, asphalt and ready-mix concrete.
SigmaRoc has had a good year, increasing revenues by 98% to GBP538m year-on-year as at 31st December 2022. The growth in revenues was mirrored in terms of earnings, which grew 106% from GBP49.3m at the end of 2021 to GBP101.7m at the end of last year. Predictably, profit before tax also grew, year-on-year by 134% to GBP62.7m. Earnings per share tracked SigmaRoc’s performance, going up to 8p. However, net debt increased 18% to GBP193.8m.
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The company listed on AIM in January 2017 and today has a market capitalisation of GBP373.3m. The company opened trading today at 54.7p. The quarrying company has offered a year-to-date return of -2.5%, a one-year return of -31% with its shares ranging between 36p and 80p over a 52-week period.
SigmaRoc was established in 2016. A newco, the company was formed by a group of industry executives David Barrett, who is the group’s current chairman, Max Vermorken, CEO and Charles Trigg the current Chief Technical Officer. Barret, Vermorken and Trigg all had careers in the construction materials sector prior to coming together to found SigmaRoc.
The founders set up the company with the aim of creating a new kind of construction materials business that could deliver high-quality products and services to customers in a more efficient and customer-focused way. They identified a gap in the market for a company that could provide a better customer experience and offer more innovative and sustainable solutions.
Disruption and innovation
The founders of SigmaRoc believed that the construction materials industry was ripe for disruption and innovation. They felt that traditional players in the industry were not adequately addressing the needs of customers or adapting to changing market conditions and customer preferences. They also saw an opportunity to improve the efficiency and sustainability of the industry through the use of new technologies and processes.
With this in mind, the founders of SigmaRoc set out to establish a new kind of construction materials company that could be more agile, customer-focused, and innovative. They wanted to build a business that could deliver high-quality products and services to customers, while also being more efficient, sustainable, and profitable than traditional players in the industry.
The company’s initial focus was on acquiring underperforming quarries and manufacturing sites, which it then improved and optimized to increase production capacity and efficiency.
Rapid growth
SigmaRoc grew aggressively with five deals in the first four years creating a UK regional presence including Ronez in 2017 in the Channel Islands, Topcrete in Somerset, Leicershire-based pre-cast concrete producer CCP Building Products, followed swiftly by the acquisition of Poundfield Products in Suffolk, another pre-cast concrete manufacturer and then GDH Assets in Wales, which managed quarries and cement manufacturing facilities.
The initial, IPO-funded acquisition spree helped SigmaRoc quickly grow its scale and presence in the UK and diversify its product base, with the aim of making the companies it acquired more modern and efficient and developing a national synchronised network.
In addition to these acquisitions, SigmaRoc has also made strategic investments in innovative technologies, such as new production processes and digital systems, to further enhance its operations and increase customer satisfaction.
Having worked on the other side of the fence, so to say, the founders knew the frustrations of the construction supply chain, and aimed to create a supply company that developed a good long-term relationship with its customers, putting service at the top of the agenda. In the following years this focus on customer satisfaction and delivery saw the firm win a number of strategic contracts with various national housebuilders, infrastructure projects and construction companies.
Strategic partnerships
But the company did not just want to focus on the UK market. In 2020 SigmaRoc entered a partnership with Groupe CB, a leading construction materials company based in France. The company subsequently expanded into Belgium, Portugal and Spain either through strategic partnerships or direct acquisition.
Last year SigmaRoc started proceedings to acquire Finnish limestone firm Nordkalk, for GBP402m, after conditionally raising GBP260m to fund the acquisition of the wholly-owned subsidiary of Rettig Group. The acquisition would open up markets in Scandinavia and the Baltics and was completed last August. The company subsequently signed a cooperation agreement with ArcelorMittal to develop a new 900,000 tonne per year JV company in Dunkirk to produce net-zero lime, an essential purifying additive used in steel production.
Placements
The company followed up in February with another GBP30m placement with REX Retail, the proceeds of which will part-fund ten potential near term strategic acquisition opportunities and four organic growth and carbon footprint reduction projects. Taken together, the acquisitions and organic investment projects are anticipated, should they all complete, to generate approximately GBP42m of net revenue, GBP10m of EBITDA and profit after tax of GBP6m on an annualised basis.
Since the fund-raise, SigmaRoc has made good on its intentions, acquiring two new companies for around GBP12m, Goijens Concrete Group, a ready-mix and pumping company in Belgium and which operates two concrete plants and concrete recycling facilities, as well as pumping and other services; and Juuan Dolomiittikalkki, a specialist supplier of high quality dolomitic limestone, used in the agricultural and environmental sectors to improve regulation of soil pH and water retention in Finland, which seamlessly fits into SigmaRoc’s Nordkalk’s Nordics platform.
Today, the company has 80 operational sites with over 2,000 employees and 1.3 billion tonnes of materials under management. Expect more of the same in 2023, as SigmaRoc seems to be committed to the development of its footprint, targeting further value enhancing ideas, both organic and inorganic.
To date the strategy has worked well, and there remains the potential to deliver attractive returns, enhance earnings and also decrease leverage. One of the SigmaRoc’s core strengths is its proven ability to drive strategic improvement irrespective of market conditions.
Share price could be better
On the downside, the company maintains a debt overhang that, in an environment of rising interest rates, might cause problems down the line as interest payments will start to eat into earnings. Moreover, given the aggressive nature of the firm’s growth by acquisition, shareholders have been diluted in the past year, and with acquisitions coming thick and fast, concerns can justifiably be raised that the new units haven’t had the time to embed themselves fully into the group’s operations. This has had an impact on the share price, which should, given the firm’s operational capacity, be doing much better than it is at the moment.
Part of the rationale of the slow share price growth is that SigmaRoc’s management is incentivised to focus on earnings and EPS growth, with the offer of 125% of salary linked to EBITDA and EPS, and less on shareholder value. The quarrying firm’s management must do something in the year to address shareholder returns. But in all, given the poor general market trading conditions, the latest set of results is impressive and should SigmaRoc continue to perform in the same vein, the benefits will eventually trickle-down to smaller shareholders.
