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SigmaRoc plc Shipping subsidiary established – Zeus Capital

SigmaRoc plc (LON:SRC) has established a new bulk-shipping subsidiary to support the material importation requirements of its Ronez vertically-integrated aggregates business on the Channel Islands. The initiative includes the £0.55m acquisition of a dedicated bulk cement carrier, an investment that we believe not only simplifies and de-risks Ronez’ logistics chain (cement being the one key input material for which Ronez is not self-sufficient in on the islands) but which could also generate at least £0.2m pa of additional operational EBITDA to SigmaRoc as the vessel has capacity to also provide supplementary shipping services to third-party cement majors around the British Isles and northern Europe. Such returns would see the initial investment repaid in under three years, offering value accretion to SigmaRoc which is currently trading at 9.3x our revised 2017 EBITDA forecast. The latter multiple represents a discount to the peer-group average 2016 EV/EBITDA of 12.2x, a valuation gap we believe should narrow as SigmaRoc rolls out further earnings-accretive growth initiatives in its project pipeline.

Shipping subsidiary established: SigmaRoc has incorporated a new subsidiary, SigmaGsy Ltd, dedicated to bulk shipping activities. These will include delivering cement from European suppliers to the group’s Ronez aggregates business on the Channel Islands, but also shipping for third-party cement majors and other partners around the British Isles and northern Europe. SigmaRoc anticipates this will add over £0.2m pa to its operational EBITDA, starting from Q2 2017. An initial upfront investment of £0.55m is required to complete the purchase of a dedicated bulk cement carrier, a sum SigmaRoc is adequately funded to meet (we estimate group cash was c£2m on completion of the Ronez transaction in January, and in February it agreed terms for a £2m revolving credit facility and was finalising terms for a £18m term loan facility).

Forecasts adjusted: After incorporating SigmaRoc’s annualised operational EBITDA forecast for SigmaGsy of £0.2m (from Q2 2017), our 2017 group-level EBITDA estimate (i.e. after also taking in to account corporate-level costs) rises slightly, by 3% to £5.1m. Our 2018 estimate (which incorporates a full year’s contribution from SigmaGsy) increases by 4%, to £5.4m. A full summary of our revised financial forecasts for SigmaRoc is detailed in Exhibit 1 on p2.

Valuation: Based on our revised estimates, SigmaRoc is trading at an undemanding EV/EBITDA 2017E of 9.3x, a discount to the current (2016 EBITDA) sector average of 12.2x (Exhibit 2). We therefore see considerable scope for share-price re-rating as SigmaRoc demonstrates its credentials as an above-average growth company in the construction materials sector with further earnings-accretive acquisitions and/or roll-out of organic growth initiatives.

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