Join our community of smart investors

Smaller is beautiful for Severfield

The structural steel specialist has effectively de-risked its order book
November 27, 2018

London’s Shard and ‘Cheesegrater’ skyscrapers, along with Tottenham Hotspur’s stadium, sit among Severfield’s (SFR) portfolio of high-profile projects in the capital. And it’s now gearing up on a £50m contract to put up steel at the Google headquarters building in London’s King’s Cross. The structural steelwork specialist closed out its half-year with a near-record order book and improvements in the underlying operating margin mean that it’s on track to achieve its target of “doubling 2016 underlying profit before tax to £26m by 2020”.

IC TIP: Hold at 69.8p

The Google contract aside, the £230m order book now has a higher proportion of smaller, short-run contracts, effectively de-risking the backlog. Admittedly, the big marquee deals grab the headlines and can provide enhanced long-term revenue visibility, but they can prove costly when things don’t go to plan. Indeed, Severfield is engaged in discussions to determine liability among stakeholders in the Cheesegrater project, which required remedial work when bolts started shearing off shortly after it was opened.

There was a greater call on cash-flows through enhanced dividend payments (including a 1.7p special) and there will be further capital commitments from planned capacity expansion at its factory in Bellary, India, which it runs with joint venture partner JSW Steel, from 60,000 tonnes to 90,000 tonnes a year. Nevertheless, the balance sheet remains in good order.  

Broker N+1 Singer forecasts pre-tax profits of £24.6m for the March 2019 year-end, leading to EPS of 6.6p, rising to £26.8m and 7.2p in FY2020.

SEVERFIELD (SFR)   
ORD PRICE:69.8pMARKET VALUE:£ 212m
TOUCH:69-69.812-MONTH HIGH:88pLOW: 62p
DIVIDEND YIELD:3.9%PE RATIO:11
NET ASSET VALUE:56p*NET CASH:£25.3m
Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201713711.53.140.9
201814913.13.541.0
% change+9+14+13+11
Ex-div:13 Dec   
Payment:11 Jan   
*Includes intangible assets of £54.7m, or 18p a share