By Yadarisa Shabong
(Reuters) – Building materials supplier SIG Plc <SHI.L> warned on Monday about significantly lower profits due to a weakening economic outlook in Britain and Germany, driving its shares down as much as 26% and rattling nerves across the construction industry.
British construction has slumped, weighed down by uncertainty over Britain’s departure from the European Union, while the German economy has been slipping towards recession even as construction remains buoyant.
SIG’s warning sent ripples through the FTSE Construction and Materials sector <.FTNMX2350>, with shares of bigger rivals Travis Perkins Plc <TPK.L>, Howden Joinery Group Plc <HWDN.L> and B&Q-Owner Kingfisher Plc <KGF.L> all lower.
SIG’s trading update highlighted “a number of key indicators pointing to further weakening of the macroeconomic backdrop, notably in the UK and in Germany.”
The Sheffield-based company expects much lower underlying profitability compared to previous expectations in both its specialist distribution and roofing merchant businesses.
“This deterioration in trading conditions has accelerated over recent weeks, and political and macro-economic uncertainty has continued to increase,” the company said as it entered its “traditionally strongest” trading months of the year.
Berenberg analyst Lushanthan Mahendrarajah said: “There’s also this factor about how much of your weighting in your profit is geared into September to November time, just when Brexit negotiations are heating up, which means uncertainty is at a peak.”
“Any company that have a big chunk of their profit coming in September and October, there’s more of a risk of not hitting their full-year expectations.” Mahendrarajah said.
Shore Capital analyst Graeme Kyle said the warning reflected “political turmoil impacting construction project decisions in the UK”.
SIG’s shares were down 16% at 100.2 pence as of 1127 GMT after earlier flirting with a three-year low.
Peel Hunt analysts have cut their pretax profit estimates for SIG by 15% to 68 million pounds for 2019.
The company also announced the disposal of its air handling division and building solutions business.
SIG, which supplies insulation, energy management and roofing products, said it was taking actions to address the continuing market weakness, but did not divulge specific details.
The group reported underlying profit before tax of 75.3 million pounds for the year ended Dec. 31, 2018.
(Reporting by Yadarisa Shabong and Uday Sampath Kumar in Bengaluru; Editing by Bernard Orr/Edmund Blair/Jane Merriman)