The Investment Column: SIG shares warm up after bid

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The Independent Online
NOW IT'S got a bit nippy, it seems appropriate that SIG, which makes insulation for plumbing, should receive a bid approach sending its shares up some 30 per cent to 288.5p. This column recommended buying the shares back in July at 208.5p after it put out an upbeat trading statement, but with the company giving no details of the value of the approach, should investors now sell the shares?

SIG investors have been here before, of course. The shares recently jumped on news of a mooted management buyout, only to collapse when that failed. This time, the situation is slightly more optimistic. The approach - thought to be from Clayton Dubilier & Rice, the US private equity group - is unsolicited, and is thought to be one of several other approaches that the group has had. Recent solid trading news in the group's interim results, combined with the prospect of further upside when SIG's German market - already 30 per cent of sales - really gets going, mean SIG will continue to look an attractive morsel if this deal fails.

Moreover, SIG is still looking good value despite the sharp upswing in its share price yesterday. Analysts expect pre-tax profits this year of around pounds 41.5m and earnings of 23.5p per share, putting the stock on a forward multiple of less than 13 - still a discount to many of its larger peers in the heavy building materials sector. Valuing SIG on the average sales multiple which attends acquisitions in the sector, the shares would exit at around 300p per share.

While that makes the shares an attractive hold, many investors should question whether the upside from here is sufficient to justify buying the shares given the downsides. If the bid falls through, the shares will doubtless take a hammering. The bidder is conducting due diligence, so there remains the possibility it will uncover something which makes it change its mind. Still, the improving trend in sales in the UK and France provides some insulation. The next trading update is due in the middle of January.

Nervous investors should take some profits, but those not feeling the pinch should hang on in there.

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