SIG Plc (LON: SHI)

Business Overview
SIG Plc is a Sheffield, the United Kingdom-based distributor of building products in Europe. The group is involved in the supply of expert products to construction and related markets. The company’s business is differentiated into two segments: UK & Ireland and Mainland Europe.

Recent News
On 9^th January 2020, the company announced its trading update for the full year ended 31^st December 2019.

On 18^th December 2019, the company announced that Andrea Abt had decided to step down from the Board and would leave the company on 12 February 2020. The company also announced the Kate Allum is appointed as a designated non-executive director of the company effective from 1 January 2020.

Trading Update for FY 2019

(Source: Interim Report, Company Website)

In the financial year 2019, the company’s like for like (LFL) revenue decreased by 6 per cent over the year. Its revenues from continuing operations dropped by 7.4 per cent during FY2019, including 0.8% currency movement effect and a 0.5% impact from fewer working days. In the UK & Ireland, the company’s business slumped following the drop of revenue by 15.5 per cent. In the second half of FY 2019, LFL revenue declined by 18.6 per cent in the UK & Ireland segment. The company witnessed a growth in LFL revenue in its Mainland Europe segment, up by 1.2 per cent during the fiscal year 2019. However, in the second half of the fiscal year 2019, the company recorded a decline in its LFL sales by 0.7 per cent.

Share Price Performance

Daily Chart as on 9^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 9^th, 2020, SIG Plc shares were trading at GBX 94.25 at the time of writing before the market close (at 11:10 AM GMT), down by 21 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 154/GBX 87.60. The stock price is in down-trend in all the time frames.  The stock price has given negative 15.04 per cent returns during the previous year.

Conclusion
The company’s growth during the financial year 2019 has been hampered. Its LFL sales are dropping. Some improvements in its gross margins are expected and the company expected to reduce its operating cost during the fiscal year 2019. Further reductions in levels of working capital has helped the company to reduce its net debt at 31 December 2019 to GBP 162 million (2018: GBP 189 million). However, the group currently facing a challenging economic environment and the continuing weak levels of market demand in the building and construction markets, including macro-economic uncertainty due to Brexit. Some additional risks are the Delivery of the change agenda, Data quality, Market downturn, Supplier rebates which could affect the revenue, operations and profitability of the company. Internal or external cyber-attacks and a critical data breach could result in system disruption of loss of sensitive data which could hamper the operations of the company. The market environment in which company operates has low growth potential which could impact on company’s profitability. The company operates in multiple locations and any change in the economic and political policy could hamper the company’s operating performance.

Based on the risks factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 119.20 (as on 8^th January 2020, after the market close), with support from few catalysts needs to be evaluated at a later stage.

Dunelm Group Plc (LON: DNLM)

Business Overview
Dunelm Group Plc is a homewares company based in the UK. It is a general retailer company which provides a range of products to its customers. The company's online store has approximately 24,000 products with around 170 superstores and two high street stores.

Recent News
On 9^th January 2020, the company announced its second-quarter trading for the period ended 28 December 2019.

On 10^th December 2019, the company announced that it had appointed Peel Hunt LLP as a joint corporate broker, to work alongside UBS AG London Branch, with immediate effect.

Trading Update Q2 FY2020

(Source: Interim Report, Company Website)

The company’s total like for like (LFL) sales increased by 5.0 per cent on a YoY basis in the second quarter due to strong growth across the total retail system. Total growth which includes the new stores was 6.2 per cent on a YoY basis. Total LFL sales for the first half of the fiscal year 2020 increased by 5.6 per cent with total growth of 6.0 per cent. Gross margin of the company improved by approximately 110bps in the second quarter due to sourcing gains and lower product markdowns during the period. The net debt of the company reduced to GBP 68 million (as at 28^th December 2019) against GBP 73 million in FY2019.  During the first half of the fiscal year 2020, the company paid a dividend of GBP 65 million. The company expected profit before tax (PBT) for the first half of FY2020 to be approximately GBP 83 million against the prior year PBT, which was GBP 70 million.  The company estimated that the impact of IFRS 16 would reduce PBT by approximately GBP 1.3 million in the first half of FY20.

Share Price Performance

Daily Chart as on 9^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 9^th, 2020, Dunelm Group Plc shares were trading at GBX 1,146 at the time of writing before the market close (at 1:00 PM GMT), up by 0.26 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 1,206/GBX 644.72. The stock price has given 71.20 per cent returns during the previous year and now some correction is expected in the stock price.

Conclusion
The company has delivered a decent financial performance in the second quarter of the fiscal year 2020. The company’s gross margins have improved. The company’s operational costs are in control and in line with expectations and the net debt of the company has reduced. The company faces certain principal risks and uncertainties, which could impact its overall performance. Failure to respond to changing consumer needs could affect the revenue of the company. Inability to deliver proper products timely to its customers could hamper the reputation of the company. Failure to anticipate the regulatory impact of climate change could affect the operations of the company. Brexit could impact sales and margin of the company due to a downturn in consumer demand. A critical data breach could affect the operations of the company.

Based on the valuation and factors as highlighted above, we recommend our investors to keep a “Watch” on the stock at the current price of GBX 1,187 (as on 9th January 2020, before the market close at 8.26 AM GMT), with support from few catalysts needs to be evaluated at a later stage. 

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