We recently researched SGH Ltd (ASX:SGH) after the Company released a trading update in early November. The trading update confirmed solid performances in WesTrac, improvement in Coates Hire and stronger-than-expected performance of SGH’s Media interests. Given the recent pullback, do current levels still present an attractive entry point?
About SGH Ltd
SGH Ltd (formerly Seven Group Holdings) is a diversified operating and investment group with interests in the industrial services, media and energy sectors. The Company’s industrial services division includes:
i. WesTrac (100% owned by SGH), the sole authorised dealer of Caterpillar products in NSW, Western Australia and ACT. WesTrac is one of the largest global Caterpillar dealers (by sales) and is exposed to mining investment/production and infrastructure construction.
ii. Coates Hire (100% owned by SGH), which is the largest nationwide industrial and general equipment hire company with a national footprint of around 130 branches. Coates Hire services a diverse range of end markets including engineering, mining and resources, infrastructure, manufacturing, construction, agriculture and major events.
iii. Boral (100% owned by SGH) is Australia’s largest construction materials and building products supplier.
Key Fundamental Drivers
WesTrac Supported by Growth in Equipment Sales
The recent trading update highlighted that WesTrac continues to perform strongly, with key fleet replacements still ongoing and an ageing fleet driving ongoing service revenue growth. Robust production activity posted by iron ore major miners for the 1st quarter of FY26 signals support for near-term aftermarket services demand (i.e. component consumption and rebuild activity).
Component pricing dynamics over FY26 are expected to have a negligible impact on WesTrac’s Services sales growth and EBIT margin. Conversely, cyclically-low thermal coal prices are challenging NSW thermal coal producers, likely deferring capital investment decisions among higher-cost producers.
One risk for WesTrac (presently not factored than consensus estimates) is slower-than-expected capital sales. This presents a risk as key fleet replacements roll off and mining equipment likely undergoes more extensive rebuild activity in preference to replacement.
Silver Lining for Coates Hire
Coates Hire has faced some recent challenges. These include lower growth in the value of Engineering Construction work done in key states and shrinking infrastructure backlogs across the East Coast and Australia.
However, Australian non-residential building approvals (smaller market for Boral and Coates Hire) have maintained a positive trend in FY26 period to date. The value of non-residential building approvals – a leading indicator for the near-term activity outlook for Boral and Coates Hire – has been trending higher since December 2024.
SGH recently outlined a new 5-year plan (Grow30). Grow30 is focused on driving revenue growth in priority industries (renewables, defence, etc) and expanded equipment offerings (engineering, Heating, Ventilation, and Air Conditioning, etc).
Since the launch of Grow30, Coates Hire’s average quote size and win rate have both improved to the highest levels since FY20. In addition, fleet utilisation has improved from 59.4% in FY25 to 60.6% in the FY26 year-to-date and slightly above the 60% target.
Boral Performing Well Despite External Challenges
While Boral appears to have faced some weather challenges in 1Q26, its operational performance has continued to improve. Boral’s exposure to the residential construction market, coupled with cost efficiencies delivered in FY25, are expected to deliver leveraged upside as residential construction activity recovers. A recovery in residential construction activity (more likely over the medium term) is considered a key a catalyst for meaningful EBIT margin expansion towards SGH’s “mid-teens through-the cycle” medium term target for Boral. In context, EBIT margin expanded by 255 basis points to 13.0% in FY25 and have progressively expanded from 3% in FY22.
Lower Gearing Profile Enhances Scope for Accretive Acquisitions
A strong increase in operating cashflow enabled a reduction in gearing (on a Net Debt to EBITDA basis) to 2.04x as at 30 June 2025. Gearing is expected to decline further as free cashflow is expanding over F26/27. This positions the Company to pursue further acquisitions. To this end, an announcement of an acquisition is likely to be well received by the market given SGH’s track-record of delivering strong recovery in the financials of acquired businesses.
Fundamental View
At current levels, SGH is trading on a 1-year forward P/E multiple of ~18.5x (up from 18x at the time of our report). The current multiple is towards the lower end of the trading range over the last two years. Accordingly, the risk-reward has become more appealing, especially given that the medium-term EPS growth profile remains at ~10% over FY25-28 and the key drivers of double-digit EPS growth remain.
We also note the potential for upgrades to consensus EPS growth forecasts from EPS-accretive acquisitions. To this end, we contend that further acquisitions are becoming more likely.
Charting View
In mid November, SGH broke under a major trendline. We would now be targeting the next level of support which is near $42. So whilst SGH is good value at the moment, investors may be able to obtain the shares at an even cheaper price than current levels.
Michael Gable is managing director of Fairmont Equities.
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