Join our community of smart investors

Orders reach new highs at Severfield

The market leader is benefiting from the UK's infrastructure push, and the valuation looks attractive
June 15, 2022
  • Record order book
  • Margin hit by steel prices

Severfield (SFR) is taking advantage of “a golden age of infrastructure”. The UK’s biggest structural steel company revealed a record order book against a backdrop of the government’s £650bn national infrastructure strategy. And future major wins are expected, given the business’s nuclear offering, after the state’s recent announcement of a new energy security strategy.

The order book soared as projects such as HS2 bridge packages, rail electrification work, and the new stadium for Everton Football Club were secured. At 1 June, UK and Europe orders sat at £486mn and India orders at £158mn, a significant uplift from the combined £533mn last November. Visibility over future earnings is clear and promising.

While most of the top line comes from the UK, there was encouraging progress in India. Severfield’s joint venture with India’s biggest steel producer, JSW Steel, returned to profit, as revenue doubled to £100mn. Chief executive Alan Dunsmore told Investors’ Chronicle that he expects significant future growth in the region as its economy continues to transform “from a largely concrete-dominated construction market” and the demand for steel rises.

The company fell into a net debt position, although management is confident that this will reverse over the next 12 months. This was driven by a rebalancing of working capital, cost increases and higher steel purchases to meet production needs. The fall in operating margin, down by 40 basis points to 5.7 per cent, was likewise not something to cheer but there was little Severfield could do given the “dilutive impact” of spiking steel prices.

Progressive Equity Research has the shares trading at seven times forward 2023 earnings, which looks undemanding given order book levels and growth projections. A rejig of UK and Europe operations into three divisions also looks strategically encouraging. Buy.

Last IC View: Buy, 71p, 24 Nov 2021

SEVERFIELD (SFR)   
ORD PRICE:63pMARKET VALUE:£195mn
TOUCH:63p-66p12-MONTH HIGH:85pLOW: 59p
DIVIDEND YIELD:4.9%PE RATIO:12
NET ASSET VALUE:66p*NET DEBT:15%
Year to 26 MarTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201827422.26.102.60
201927524.76.702.80
202032725.86.701.10
202136321.15.632.90
202240421.05.053.10
% change+11-0.5-10+7
Ex-div:8 Sep   
Payment:14 Oct   
*Includes intangible assets of £92.5mn, or 30p a share