Severfield — Update 17 February 2016

Severfield (LSE: SFR)

Last close As at 24/04/2024

GBP0.70

0.80 (1.16%)

Market capitalisation

GBP216m

More on this equity

Research: Industrials

Severfield — Update 17 February 2016

Severfield

Analyst avatar placeholder

Written by

Industrials

Severfield

Significant increase in UK order book

Trading update

Construction & materials

18 February 2016

Price

58.75p

Market cap

£175m

Net cash (£m) at end September 2015

12.9

Shares in issue

297.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

(7.5)

(14.9)

Rel (local)

(7.6)

(3.5)

(4.3)

52-week high/low

73.2p

57.0p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility currently undertakes structural steelwork projects for the local market and is fully operational.

Next events

FY16 year end

March 2016

FY16 results

June 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Severfield is a research client of Edison Investment Research Limited

An in-line trading update states that Severfield’s UK and Indian JV operations and the group overall are performing as outlined in the H116 results. Both regions have seen improved order book positions, with a 33% increase in the UK since the beginning of November particularly noteworthy. While some cautionary industry comments were reiterated, we consider that the UK order position is a strongly positive development.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

231.3

4.5

1.1

0.0

53.4

N/A

03/15

201.5

8.8

2.5

0.5

23.5

0.9

03/16e

232.1

12.3

3.4

1.0

17.3

1.7

03/17e

244.1

16.2

4.5

1.3

13.1

2.2

Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.

Building UK forward order visibility

Successful execution of projects on hand and continuing progression of operating margins into the 5-6% range for FY16 are key near-term targets and Severfield appears to be on track here. We have consistently flagged order book development as a lead indicator for progress beyond this. Consequently, we see the move from £185m to £246m (between 1 November and 15 February) as significant and believe that this is the highest reported UK order book since August 2011. There appears to have been a lengthening of order visibility rather than a material increase in short-term activity levels, but this bodes well for capacity utilisation and operating efficiencies in due course. In the absence of project-specific detail, we would expect the key drivers of the increase to have been the conversion of some larger projects in previously indicated prospects across a mix of sectors. This said, management has reiterated previous caution regarding scope for timescale slippages, which we believe is likely to relate to the rate of new contract awards in the industry rather than specific Severfield projects on hand.

Stability in Indian JV

There has been no discernible change to business conditions for the Indian JV in the last three months, but steady production levels and an order book increase (up from £35m to £39m) are both welcome updates. As things stand, this is likely to be insufficient to allow the JV to move clearly into positive PBT territory from current levels (which we estimate to be at or around break-even after interest costs). However, the gradual process of increasing the penetration of structural steelwork in construction projects in the local market is ongoing.

Valuation: Earnings recovering, rating falling

In valuation terms, Severfield is trading on a current year P/E of 17.3x, EV/EBITDA 9.1x and prospective dividend yield of 1.7%. For FY17, these metrics fall to 13.1x, 7.1x and 2.2% respectively. While there is cautious UK economic commentary currently, sustained order book activity at the current levels suggests a rising rate of revenue growth for Severfield, above the levels that we have presently factored in.

Exhibit 1: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

12m to Dec

12m to Dec

12m to Dec

15m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

PROFIT & LOSS

Revenue

 

 

266.7

267.8

256.6

318.3

231.3

201.5

232.1

244.1

256.1

Cost of Sales

(242.6)

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(213.6)

(221.9)

(230.0)

Gross Profit

24.1

20.9

(12.2)

(12.7)

13.5

14.9

18.5

22.3

26.1

EBITDA

 

 

21.6

19.5

(13.6)

(13.6)

12.0

13.6

17.9

21.7

25.7

Operating Profit - Edison

 

 

17.1

15.0

(17.7)

(18.6)

8.4

10.0

13.7

17.2

20.9

Net Interest

(0.9)

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.4)

(0.3)

(0.2)

Associates

(0.4)

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.0

0.0

SBP

(0.0)

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(0.8)

(0.8)

(0.8)

Intangible Amortisation

(2.7)

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.6)

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(1.4)

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.3)

0.0

0.0

Profit Before Tax (norm) - Edison

 

15.8

10.6

(19.1)

(20.9)

4.5

8.8

12.3

16.2

20.0

Profit Before Tax (norm)

 

 

15.3

10.1

(19.6)

(21.5)

4.0

8.3

11.8

15.7

19.5

Profit Before Tax (FRS 3)

 

 

11.1

6.8

(23.3)

(28.9)

(4.1)

(0.2)

8.9

13.1

17.9

Tax

(3.5)

(0.9)

3.9

5.7

1.4

0.3

(1.8)

(2.8)

(3.4)

Profit After Tax (norm)

11.7

7.7

(16.2)

(17.9)

3.1

7.4

10.2

13.4

16.6

Profit After Tax (FRS 3)

7.6

5.8

(19.4)

(23.1)

(2.6)

0.1

7.1

10.3

14.5

Average Number of Shares Outstanding (m)

89.0

89.3

89.3

89.3

295.8

297.5

297.5

297.5

297.5

EPS - normalised (p) - Edison

 

 

6.82

4.51

(9.42)

(10.42)

1.05

2.47

3.42

4.52

5.57

EPS - normalised (p)

 

 

6.51

4.21

(9.72)

(9.45)

0.88

2.31

3.25

4.35

5.40

EPS - FRS 3 (p)

 

 

4.47

3.41

(11.33)

(13.49)

(0.89)

0.05

2.38

3.47

4.87

Dividend per share (p)

7.5

5.0

1.5

0.8

0.0

0.5

1.0

1.3

1.6

Gross Margin (%)

9.0

7.8

-4.8

-4.0

5.8

7.4

8.0

9.1

10.2

EBITDA Margin (%)

8.1

7.3

-5.3

-4.3

5.2

6.7

7.7

8.9

10.0

Operating Margin - Edison (%)

6.4

5.6

-6.9

-5.8

3.6

4.9

5.9

7.1

8.2

BALANCE SHEET

Fixed Assets

 

 

165.0

156.9

155.6

154.9

147.7

145.1

145.9

144.1

143.3

Intangible Assets

75.2

72.9

70.4

69.8

64.6

61.8

59.0

56.3

54.7

Tangible Assets

82.9

79.6

76.2

76.1

74.1

76.6

77.2

77.7

77.9

Investments

6.9

4.4

8.9

8.9

9.0

6.7

9.7

10.2

10.7

Current Assets

 

 

88.1

100.5

69.8

80.5

72.2

76.3

83.4

96.0

110.7

Stocks

12.6

9.1

7.1

8.2

5.8

4.8

5.5

5.7

5.9

Debtors

71.9

89.2

61.2

71.6

60.8

64.6

68.1

72.1

76.0

Cash

3.6

2.3

1.4

0.7

5.5

6.9

9.8

18.3

28.8

Current Liabilities

 

 

(99.8)

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(62.6)

(65.6)

(68.2)

Creditors

(81.2)

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(62.6)

(65.6)

(68.2)

Short term borrowings

(18.6)

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

0.0

0.0

0.0

Long Term Liabilities

 

 

(22.3)

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(18.3)

(18.3)

(18.3)

Long term borrowings

0.0

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.6)

(0.6)

(0.6)

Other long term liabilities

(22.3)

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.8)

(17.8)

(17.8)

Net Assets

 

 

130.9

132.3

106.6

102.4

143.4

140.6

148.3

156.2

167.5

CASH FLOW

Operating Cash Flow

 

 

(5.8)

(5.4)

12.9

3.1

2.1

11.4

16.1

19.2

23.0

Net Interest

(0.8)

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.4)

(0.3)

(0.2)

Tax

(5.4)

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(1.1)

(1.8)

(2.8)

Capex

(2.8)

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.5)

(5.0)

(5.0)

Acquisitions/disposals

(2.9)

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.0)

(0.5)

(0.5)

Financing

0

0

0

0.0

44.8

0

0

0

0

Dividends

(8.9)

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(3.1)

(4.0)

Net Cash Flow

(26.6)

(16.3)

1.7

(9.7)

41.5

6.7

3.1

8.5

10.5

Opening net debt/(cash)

 

 

(11.5)

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(9.2)

(17.7)

HP finance leases initiated

0

0.0

0.1

0.0

(0.2)

(0.3)

(0.1)

0.0

0.0

Other

0

(0)

(0)

(0)

0.2

(0.6)

0.1

0

0

Closing net debt/(cash)

 

 

15.0

31.3

29.7

41.2

(0.3)

(6.1)

(9.2)

(17.7)

(28.2)

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

More on Severfield

View All

Latest from the Industrials sector

View All Industrials content

Research: Healthcare

Paion — Update 16 February 2016

Paion

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free