Spent the last few days looking at SIG PLC (roof insulation/building products in the UK + Europe) - I really want it to work, but balance sheet freaks me out. Went back to the 1990s when the UK last had a longish construction downturn and SIG made an epic comeback - key differentiator was the lack of debt on the balance sheet. And debt represents a time bomb. Market realises this, too - even if construction revives itself in the UK, which I think it is, it takes a couple years for that demand to feed itself through to SIG - history and the CEO, who I really like, have both said that.
If you're looking for a stock that's effectively a call option, SIG is not a bad bet. But it's not really value investing. I pass. Especially because there's speculation of equity raises etc. But, as I say, Gavin Slark, CEO, is very capable with an impressive history. I want him to succeed as a bystander.
FWIW, construction companies in the UK are some of the most hated I've ever seen - and for good reason, too, given that last fifteen years have been "lost." Negative working capital, loaded with debt, bad management focussing on growing toplines without costing appropriately and confusing financials results in the market not really getting too friendly. The GFC is still recent in the minds of some but, hey, I was four. I don't remember and maybe that's a blessing.
Have found a couple of anomalies in that they're run very well, with clean balance sheets and are returning excess cash to shareholders. All of the signs suggest that construction is going to pick up over the next decade in the UK - naturally, I'm a bull. The better managed companies have already begun to make a run for it. Weirdly, I don't mind buying a "rising" stock here. I'm fairly sure I'm still early. (Galliford Try (GFRD.L) and Balfour Beatty (BBY.L) are my favourites.)
Generally, I can't work out the homebuilders but there's a micro-cap Scottish homebuilder that trades at low levels to cash flows and has an "NVR-like" model - Springfield Properties. Worth a closer look at. No position yet, but given there's a housing emergency --- Scottish government declares national housing emergency - BBC News --- it seems like there's a favourable market. And on lower rates etc.
Just an update on some of the stuff I'm looking at. In the US, I continue to like VFC and PNRG.
Management is becoming more than just a "deciding factor" in my picks now. The Proxy/Remuneration Report is the first place I head to now. Perhaps a difference in culture but I feel UK execs are paid way more fairly than in the US. Maybe it's because they know their employees will go to the effort of making it known that they know. (At least that's what I've heard!) |
