MIDAS SHARING TIPS: SigmaRoc's limestone road can lead you to riches
Theater and music halls were all the rage in Victorian times. But few took advantage of electric lighting. Instead, they heated quicklime until it emitted a bright white light, known as limelight.
Quicklime plays more of a backstage role in modern times, but behind the scenes the chemical known as calcium oxide plays an essential role in almost every aspect of our daily lives.
Quicklime is made by heating limestone and is used as a purifying agent to make a variety of products such as glassware, tableware, kettles, ovens, milk and sugar. The compound is also used to create steel bridges, buildings and roads. It is an essential part of paper production, ensures that the water is pure enough to drink and acts as a fertilizer, making the soil less acidic and the grass more palatable to livestock.
Historically, most of the leading players in this sector have been privately owned. Now though Sigma Roc will become a top producer of lime and limestone, following a bold deal announced late last year. The shares cost 57p and should rise significantly higher as the deal progresses and the business grows.
SigmaRoc was founded in 2016 by Max Vermorken, a Belgian, now 40, who came to Britain to do a PhD and decided to stay. Vermorken previously worked at cement giant Holcim and, together with building materials veteran David Barrett, founded SigmaRoc, an innovative aggregates and quarrying company.
Bright future: SigmaRoc produces limestone needed for products from roads to tableware and boilers
With 40 years of experience in the field, Barrett is known for founding and developing successful companies. Both he and Vermorken believed that companies in their sector had become too centralised, with decisions being made by directors far away from the coal mine.
From the beginning, SigmaRoc encouraged regional managers to develop their own networks, build relationships and make decisions based on the needs of local customers. The strategy worked. In 2017, SigmaRoc generated sales of £27 million and profits of £2.6 million. By 2022, revenues had risen to £538 million, while profits had risen to £63 million.
Growth came organically and through acquisitions, but Vermorken wanted more and last year he found it when Irish construction group CRH decided to divest its Northern European lime activities.
Vermorken struck, last November unveiling an £870 million takeover of CRH's business, financed by equity and debt. With SigmaRoc valued on the stock market at less than £400 million, the deal was ambitious, but major investors showed their confidence in Barrett and Vermorken and approved the takeover just before Christmas.
Now the duo just has to make it work. Their task will not be easy, but the rationale behind the deal is clear: to create a company with a turnover of £1 billion and operations in 14 countries. SigmaRoc already had a reasonable position in the limestone and lime industry. However, following the CRH deal, the group will become the number one operator in Britain, Ireland and Scandinavia and number two in Germany and much of Eastern Europe.
Vermorken and his team have also proven their ability to buy and integrate companies, having acquired about 20 over the past seven years.
This is the largest, but is structured in three tranches. The first and largest was completed last week; the others will be completed later this year. Payments have also been staggered, with £580 million due now and the rest due over the next six years.
The combined operations will deliver significant economies of scale and lower transportation costs, creating a company with more than 2.5 billion tonnes of mineral reserves and resources. Size matters in this area. Many industries cannot function without lime, so companies must be able to rely on the right products being delivered to their plants and factories on time.
SigmaRoc has already built a reputation for efficiency. Extra weight should reinforce that – to the benefit of both customers and investors.
Vermorken also has green references. Lime absorbs carbon dioxide and is expected to play a key role in companies' efforts to reduce their carbon footprint.
Brokers are optimistic about SigmaRoc's future, with sales and profits expected to more than double this year and beyond.
CRH has also shown its support, spending £82m on a 15 per cent stake in SigmaRoc as part of the takeover deal.
Midas judgment: Lime and limestone are essential parts of daily life and SigmaRoc is now the market leader in this sector. At a price of 57 cents, the shares are a long-term purchase.
Traded on: GOAL ticker: SRC Contact: sigmaroc.com or 020 7129 7828
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