Vesuvius ramps up spending as revenue grows

A strong second half meant Vesuvius (VSVS) reported numbers that were ahead of analysts’ expectations.

A 63 per cent increase in operating profit to £217mn was attributed to the fact that the molten metal flow specialist was able to keep increasing prices to cover costs, as well as to a more favourable product mix. Chief executive Patrick André said new product launches helped to grow its share of what remains a tough market. Steel production fell by 4 per cent on weaker demand as energy prices rose last year, and is only expected to rebound modestly by 0.8 per cent this year, according to BofA analysts. 

Still, Vesuvius’s numbers are now ahead of pre-pandemic levels, despite lower volumes. And after boosting its return on sales to 11.1 per cent (2021: 8.7 per cent), any normalisation would mean its medium-term target of 12.5 per cent remains within grasp, André said.

Despite the softer market, the company has continued to ramp up capex, from £59mn in 2020 to £89mn last year and an expected £100mn this year, with 60 per cent of this allocated to “growth projects”. These include existing plant expansions in China and India, and a new greenfield steel plant in India due to open next year. These will eventually add an extra £40mn to cash profits of over £280mn once fully up and running by 2026-27, the company told investors. 

Vesuvius’s shares are priced below 10 times FactSet consensus forecast earnings, but with earnings per share forecast to fall by around a quarter this year and remain subdued until then, it seems investors are in for a frustrating wait. Hold.

Last IC View: Hold, 337p, 28 Jul 2022