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Incremental improvements pay off at Severfield

The structural steel specialist is looking to attract smaller fabricators in addition to its high-profile customer base
November 22, 2017

Rising steel prices contributed to solid half-year returns for Severfield (SFR), and a 230 basis point increase in the underlying operating margin shows the company's focus on working capital management and other operational efficiencies is paying off.

IC TIP: Buy at 90p

Excluding fair value effects and amortisation, underlying pre-tax profit was up 59 per cent to £12.9m, while operating cash flow before working capital movements came in at £14.1m for the period, against £10.6m at the 2016 half year. Soon, the repayment of debt linked to Severfield’s Indian joint venture should also spark a slight uptick in profitability.

Along with higher prices, margins were helped by an increase in production activity though the period. And the group is set fair on the UK order front, with a backlog of £245m at the beginning of November 2017 (up from £229m five months earlier), of which £216m is for delivery over the next 12 months.

Broker N+1 Singer gives adjusted pre-tax profit of £21.2m for the March 2018 year-end, leading to EPS of 5.9p, against £19.8m and 5.5p in FY2017.

SEVERFIELD (SFR)   
ORD PRICE:70pMARKET VALUE:£210m
TOUCH:69-71.5p12-MONTH HIGH:88pLOW: 59p
DIVIDEND YIELD:3.6%PE RATIO:11
NET ASSET VALUE:53p*NET CASH:£31.3m
Half-year toTurnover Pre-taxEarnings perDividend
30 Sep (£m) profit (£m)share (p) per share (p)
20161187.42.070.7
201713711.53.140.9
% change+16+55+52+29
Ex-div:14 Dec   
Payment:12 Jan   
*Includes intangible assets of £54.9m, or 18p a share