Join our community of smart investors

Vesuvius looks for Chinese growth

As the company struggles with a downturn in the global steel industry, management is looking to China for a recovery
July 29, 2019

China’s dominance in the global steel industry is both a blessing and a curse for Vesuvius (VSVS). For now, the fact that the country is responsible for more than half of the world’s crude steel production is problematic. Less than 10 per cent of Vesuvius’ revenue currently comes from China, which means weakness in the wider global steel market dented group revenues in the first half of 2019.

IC TIP: Buy at 512p

But China also provides opportunities for the molten metal specialists. The company is making market share gains in this crucial locale as more Chinese steel producers seek its value-adding products, which can increase production quality. Demand for Vesuvius’ specialist refractory solutions and steel flow control products pulled revenues in the Chinese steel division up 11 per cent. Revenues in the region should be further enhanced by the expansion of the group’s research centre in Suzhou.

The outlook is less positive for the foundry division (31 per cent of group sales), where challenging market conditions don’t look likely to let up. In the six months to June, revenues in the division dropped 4 per cent to £275m.

Still, the group is gaining a tighter control of its spending, with a restructuring programme that should save a further £16m a year by 2021, on top of the previously announced £22m savings programme.

Consensus expectations are for adjusted EPS of 51.3p in the year to December 2019, from 49.6p last year.

VESUVIUS (VSVS)   
ORD PRICE:512pMARKET VALUE:£ 1.39bn
TOUCH:509-512p12-MONTH HIGH:663p469p
DIVIDEND YIELD:3.9%PE RATIO:11
NET ASSET VALUE:422p*NET DEBT:26%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201889787.824.46.0
201988978.619.36.2
% change-1-10-21+3
Ex-div:08 Aug   
Payment:20 Sep   
*Including intangible assets of £765m, or 282p a share