Broker snap: Lack of operational gearing at SIG

25th Mar 2011 12:36

RBS stays a 'buyer' of construction products supplier SIG and increases the target price, but highlights a lack of operational gearing as a key concern facing the sector.Full year pre-tax profit was £62.5m, ahead of consensus estimates of £62m, on a like-for-like (LfL) year-on-year sales decline of 0.3%. The target price is raised from 152p to 157p.However, the broker assumes that building materials/merchants' lack of operational gearing will remain constrained moving forward as cost inflation eats into a modest LfL sales recovery.Nevertheless, other operational positives such as a strong cash performance and signs of improvement in the UK gross margin lead to a retained positive stance. BC