Insider: Superdry and SIG chiefs spot an opportunity

They’re very different businesses, but both have suffered a sharp decline in share price. Time to buy?

The turnaround specialist tasked with reviving SIG (LSE:SHI) has reacted to a difficult week for the roofing and insulation supplier by purchasing £75,000 of shares in the company.

CEO Steve Francis bought the majority of the shares on Thursday at a price of 24p, having just told investors that SIG is likely to remain loss-making in the current half year. He bought the second tranche of shares at 22.54p on Friday afternoon, while persons connected to chairman Andrew Allner and director Alan Lovell also bought stock last week.

SIG was trading at near to 30p a week ago but finished Friday at 22.12p after City firms, including Jefferies and Liberum, slashed their price targets in the wake of half-year results.

Francis, a fellow of the Institute for Turnaround, arrived at SIG in February with a brief from Allner to step up the pace of SIG's operational improvement. That task soon became a lot trickier after the Covid-19 pandemic caused a 24% slide in like-for-like sales for the six months to 30 June, and underlying losses of £53.7 million in last week's results.

Sales in July and August were more encouraging, although still down year-on-year, prompting Francis to warn that the market share losses seen in 2019 will take time to recoup.

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Francis has so far focused on reconnecting SIG with customers at a local level and creating a more sales and service-driven business. In the UK and Germany, where financial performance has seen the greatest deterioration, the “operational foundations” have also required attention.

His efforts have been helped by a much sounder financial position after the company restructured its debt facilities and raised £165 million from shareholders in July, including £83 million of investment by private equity firm Clayton, Dubilier & Rice.

Francis praised the group's “agility and resilience” in the first half, adding: "Long term fundamentals remain sound in the group's markets across Europe.

“In the short term, significant economic uncertainty remains in all of our markets, although government stimulus for the construction sector, notably in the UK, is welcome.”

While Brexit and a second wave of Covid-19 are unlikely to help sentiment in the coming weeks, analysts at Peel Hunt reckon a level for shares below this summer's 30p placing price looks to be an “attractive entry point” for medium-term investors.

They have a target price of 38p, whereas counterparts at Jefferies are now at 28.6p after reducing their estimate from 35p. They said that recent trends offered some comfort, but that investors may require greater proof the strategy is working under a new management team.

There's currently no dividend, with Canaccord analysts warning not to expect a meaningful recovery in profits and earnings until 2022. Shares are on a price/earnings multiple of 10x.

Since 2005, Francis has been involved in four operational turnarounds of multi-site, international businesses with revenues ranging from £2 billion to £200 million. The most recent was as CEO of Tulip, the UK's leading pig farmer, with the others being Danwood Group, Vion Food and Vita Group.

He was recruited for a similar turnaround role at crisis-hit Patisserie Holdings, but this lasted less than four months following the company's administration.

Superdry chief takes advantage of price fall

Superdry (LSE:SDRY) co-founder and CEO Julian Dunkerton boosted his stake in the fashion retailer last week after Monday's full-year results led to a 13% slide in the share price.

Dunkerton, who returned to the business in April 2019, now holds more than 19.5% of the company after buying £1.5 million of shares in three separate transactions, the most significant of which was struck at about 135p. Chairman Peter Williams also bought more than £70,000 worth of shares on Thursday.

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Recent trading has been disrupted by pandemic lockdowns, but Dunkerton said the underlying picture was more encouraging after progress on improving the design and layout of stores was accompanied by advanced preparations for a new website.

Next month's autumn and winter ranges will also be the first full collection overseen by Dunkerton since his return to the business. He said:

“It reflects our new brand philosophy and a return to Superdry's design-led roots, which encompass a commitment to sustainability.”

Like-for-like sales are likely to remain negative in the new financial year, even when including favourable comparisons against last year's closure of stores in March and April. Costs should reduce substantially due to rent renegotiations and efficiency savings, with closing net cash set to be positive even under a downside scenario.