Barclays initiates SIG Group with 'underweight' over M&A track record concerns

SIG AG

08/08/2023 09:24

** Barclays initiates the Swiss packaging company SIG Group
 SIGNC.S  with "underweight" and target price of 19 euros,
citing concerns about company's M&A track record and expensive
valuation
    ** The broker says the company operates in a highly
consolidated aseptic packaging industry, where its shares about
90% of the industry with privately-held Tetra Pak, has "sticky
customer base" and enough technological capacity to secure high
incremental return on invested capital (ROIC) 
    ** "Notwithstanding the growth on offer, we believe SIG is
expensive, especially given that its adj EPS has been heavily
adjusted by several items historically," says Barclays 
    ** The broker also points to the gap between the co's
incremental ROIC of about 30% and reported ROIC of 7-9%
attributing it to expensive M&A transactions in last years
    ** "In the last three years, SIG has spent about 1.5 bln
euros on three acquisitions at c14x EV/EBITDA, implying that the
value creation from the core business has been paid out in
acquisitions," adds broker
    ** "We would like to see more conservative multiples on M&A
before considering a more bullish stance," says Barclays noting
also SIG's low free cash flow (FCF) conversion of about 55%
    ** Shares in SIG Group down 1.2%, among worst performers of
the Swiss mid-cap index  .SMIM 
    ** Of 14 analysts that cover SIG Group, nine rate the stock
"strong buy"/"buy," ​three rate "hold" and two​ rate the stock
"strong sell"/"sell" - Refinitiv data
    

 (Reporting by Amir Orusov)
 ((Amir.orusov@thomsonreuters.com))