Shares in building products distributor SIG (LSE: SHI) have slumped by as much as 22% today after it released a profit warning. Pretax profit was forecast to be around £103m for the full-year but is now due to be between £85m and £90m, which is a significant cut to guidance.
The reason for the cut in expected profitability is challenging market conditions, with SIG posting like-for-like (LFL) sales growth of just 0.4% in the UK and Ireland in the third quarter, while a deteriorating situation in Europe, particularly in France, caused LFL sales there to drop by 2.3% versus the comparable period last year. Furthermore, the challenging market conditions have also impacted negatively on SIG’s margins, with its gross margin expected to be flat for the year even after procurement savings have been taken into account.
Clearly, today’s update is disappointing, but SIG does have the scope to deliver at least £20m in cost savings from generating efficiencies on its supply chain and in procurement. And, while its shares are likely to come under further pressure in the short run, they could be worth buying for the long term since they now trade on a price to earnings (P/E) ratio of just 11.8 and yield 3.7% from a well-covered dividend. Furthermore, with the outlook for Europe being brighter than it has been for a number of years, SIG could see the challenging market conditions experienced in recent months subside over the medium term.
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Another stock which appears to be worth buying is Aviva (LSE: AV). It offers an exceptional mix of income, value and growth potential, with its merger with Friends Life likely to allow it to expand margins as it looks set to dominate the life insurance market. This should allow it to increase profitability and continue the successful turnaround plan which has seen it move from being a loss-making entity in 2012 to a highly profitable one which is expected to post a rise in earnings of 11% next year.
Despite this, Aviva trades on a P/E ratio of just 10.2, which indicates that now is an excellent time to buy a slice of the business. And, even if investor sentiment does remain weak over the short to medium term, a yield of 5.3% which is set to rise in the coming years due to it being covered 2.1 times by profit, should provide a steady income return in the meantime.
Similarly, easyJet (LSE: EZJ) looks set to become a realistic income stock in future years. Certainly, its current yield of 3.5% is relatively appealing, but with it being covered 2.5 times by profit and easyJet becoming a more mature business, there is clear scope for shareholder payouts to increase at a rapid rate.
However, despite becoming more mature, it remains a strong growth play with earnings due to rise by 19% this year and by a further 9% next year. In spite of this, easyJet trades on a P/E ratio of just 12.6, which appears to be rather low for a company which offers significantly superior growth prospects to the wider index. As a result, its shares look set to continue the run which has seen them rise by 20% in the last year.
