Join our community of smart investors

Infrastructure boom buoys Severfield

Growing infrastructure spend yielded a return to revenue growth at Severfield
November 27, 2015

The Chancellor’s £100bn investment in UK infrastructure, a strong London commercial property market and robust demand for distribution sheds precipitated a return to top-line growth at Severfield (SFR). Revenues at the structural steel group climbed a fifth to £117m in the six months to September, prompting investors to send shares up 5 per cent.

IC TIP: Hold at 59p

The core UK business - which designs, fabricates and constructs structural steel - worked on more than 80 projects during the period as it benefited from strong demand for construction. New contracts included commercial office developments at King's Cross and Hanover Square, together with industrial and distribution projects for DHL, BAE Systems and Jaguar Land Rover.

Robust demand was enhanced by Severfield's operational improvement programme, centred on realising production efficiencies and accelerating tendering processes. Those measures helped widen the UK unit's underlying operating margin by 0.6 percentage points to 4.3 per cent and the Indian joint venture's by 3.1 percentage points to 7.4 per cent. Though trading in India is still "slow", management said it's beginning to benefit from more higher-margin commercial projects coming to fruition.

But it wasn't all smooth sailing. Boss Ian Lawson told the IC larger projects in the UK had been subject to delays and even cancellations, due to consultants underestimating labour costs. Three "strong prospects" worth at least £100m collectively came under pressure from clients with tighter budgets. Broker Jefferies expects adjusted pre-tax profits of £12.7m for the year to March 2016, giving EPS of 3.5p, up from £8.3m and 2.3p, respectively, in 2015.

SEVERFIELD (SFR)
ORD PRICE:59pMARKET VALUE:£176m
TOUCH:59-61p12-MONTH HIGH:73pLOW: 57p
DIVIDEND YIELD:1.7%PE RATIO:NA
NET ASSET VALUE:48p*NET CASH:£13.1m

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014971.70.5nil
20151173.20.90.5
% change+20+84+85-

Ex-div: 17 Dec

Payment: 15 Jan

*Includes intangible assets of £60.4m, or 20p a share