Shareholders in specialist building products supplier SIG (SHI) are breathing a collective sigh of relief this morning after a handsome 10% share price jump. This more than makes up for yesterday’s worrying near-6% pre-trading-update drop and takes the shares to the top of the UK-s more domestic focused . It also reverses a poor start to the year that itself follows an annus horribilis which saw the shares plunge over 25% after the Brexit referendum and another 22% on a November profits warning that claimed the scalp of the CEO. Today’s positive move comes off the back of a positive FY 2016 trading update that indicates encouraging total sales growth of 11.2%, even if heavily flattered by favourable currency fluctuations (6.9%), non-organic growth from acquisitions (3.7%) and additional trading days.

On a like-for-like basis sales may have only grown marginally (+0.3%), however, no change to guidance to underlying PBT of £75-80m (H1 growth was +20%) and no worsening of already expected 30bp gross margin contraction is a welcome message. Another positive is management acknowledging recent errors, planning to shift focus back to customers in 2017, as well as reducing leverage from 200% net debt/EBITDA to 100-150% via improved cash flow, less capex and suspending acquisitions. The latter was part of management’s big ‘transformational change programme’, however, it admits that this led to distraction from customers and both competitive and challenging trading conditions that proved harmful.

Trading back north of the key 100p mark, and having revisited 2017 highs, the shares could yet challenge the bugbear hurdle of falling highs resistance at 109p that dates back to July 2015. Could management’s refocus supply loyal shareholders with a breakout that attracts fresh interest from bulls that can be built upon to drives them back November highs just shy of 120p?

Mike van Dulken, Head of Research, 13 Jan