Severfield — Order book development shows the way

Severfield (LSE: SFR)

Last close As at 28/03/2024

GBP0.58

3.80 (7.04%)

Market capitalisation

GBP168m

More on this equity

Research: Industrials

Severfield — Order book development shows the way

Severfield has maintained a steady and robust course in FY22 trading to date and management confidence in the outlook is backed by further order book growth, to record levels. This trading performance has not been reflected in the company’s recent share price movement, which is surprising as the order book has traditionally been a reliable indicator for near-term profitability.

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Industrials

Severfield

Order book development shows the way

H122 results

Construction & materials

1 December 2021

Price

69.8p

Market cap

£216m

Core net debt (£m) at end Sep 2021

6.7

Shares in issue

309.3m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.1)

(14.5)

2.7

Rel (local)

(0.6)

(12.8)

(9.7)

52-week high/low

83p

66p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility undertakes structural steelwork projects for the local market and was expanded in FY20.

Next events

H122 DPS 1.2p ex dividend

9 December 2021

H122 DPS to be paid

7 January 2022

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Severfield is a research client of Edison Investment Research Limited

Severfield has maintained a steady and robust course in FY22 trading to date and management confidence in the outlook is backed by further order book growth, to record levels. This trading performance has not been reflected in the company’s recent share price movement, which is surprising as the order book has traditionally been a reliable indicator for near-term profitability.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/20

327.4

29.1

7.9

2.9

8.8

4.2

03/21

363.3

24.8

6.6

2.9

10.6

4.2

03/22e

373.9

28.3

7.5

3.1

9.3

4.4

03/23e

373.1

31.8

8.4

3.3

8.3

4.7

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

H1 edges ahead year-on-year

Severfield’s H121 revenues were up 5% with reported EBIT ahead by c 7%. We believe these increases were primarily attributable to DAM Structures (acquired in February 2021) as contract costs are substantially fixed and – bar transport surcharges – the influence of cost inflation is unlikely to have been material for this period. In line with previously disclosed order book splits, the active project mix has been spread across commercial, distribution, energy and transport among other sectors. Furthermore, the UK/Ireland order book has continued to rise, standing at a record £393m (at 1 November). The Indian JV returned to profitability in H1, driven by a recovery in activity from FY21 levels and managed to sustain its £140m order book. With an improved contribution from JV/associates also, PBT rose by 23% y-o-y. H1 DPS was increased by 9%. Activity levels in Q2 and moving into a particularly busy H2 resulted in a project working capital outflow, which explained the move to a c £7m core net debt position (pre IFRS 16) at the period end.

On course for full year

Management’s expectations for a strong H2 and full year trading remain unchanged. A record and balanced UK/Ireland order book – including significant new stadia and transport subsector wins – provides excellent visibility going into FY23. For FY22, we have made minor changes to our estimates by trimming EBIT, which is balanced out by an increased Indian JV profit contribution giving no net change and no other material adjustments in any of our forecast years.

Valuation: Order book outperforms share price

Severfield’s share price has underperformed the FTSE All-Share since the end of August and retraced to the level at the start of 2021. In contrast, the UK/Ireland order book is 30% higher than when FY21 results were reported in June and sits at record levels. We find the share price move counterintuitive as there is excellent visibility and a more even spread of subsector exposures. On our estimates, Severfield’s FY22e P/E and EV/EBITDA multiples are 9.3x and 6.3x respectively – plus a prospective 4.4% dividend yield – and 8.3x and 5.8x for FY23e.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

 

 

 

 

 

PROFIT & LOSS

Revenue

 

 

231.3

201.5

239.4

262.2

274.2

274.9

327.4

363.3

373.9

373.1

379.4

Cost of Sales

(217.8)

(186.7)

(219.6)

(236.3)

(244.9)

(244.6)

(292.2)

(329.4)

(337.0)

(332.7)

(337.4)

Gross Profit

13.5

14.9

19.8

25.9

29.3

30.3

35.1

33.9

36.8

40.4

42.0

EBITDA

 

 

12.0

13.6

18.9

25.7

29.1

29.0

33.2

30.9

35.2

38.8

40.3

Operating Profit - Edison adjusted

 

8.4

10.0

15.2

22.1

25.4

25.3

29.3

26.5

30.1

33.4

34.7

SBP

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(1.6)

(1.8)

(0.6)

(1.5)

(1.5)

(1.5)

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.5)

(0.6)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

Operating Profit - company norm

 

7.6

9.0

13.7

19.6

22.9

23.3

27.0

25.5

28.2

31.4

32.7

Net Interest

(0.6)

(0.5)

(0.2)

(0.2)

(0.2)

(0.2)

(0.7)

(0.8)

(1.2)

(1.1)

(0.9)

Associates

(3.0)

(0.2)

(0.2)

0.5

0.9

1.7

2.4

(0.3)

0.9

1.0

1.7

Intangible Amortisation

(2.7)

(2.6)

(2.6)

(2.6)

(1.3)

0.0

(1.4)

(2.8)

(4.1)

(4.1)

(1.5)

Exceptionals

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

(1.4)

(0.4)

(0.3)

0.0

0.0

Profit Before Tax (norm) - Edison

 

4.5

8.8

13.7

20.3

24.1

25.1

29.1

24.8

28.3

31.8

34.0

Profit Before Tax (norm)

 

 

4.0

8.3

13.2

19.8

23.5

24.7

28.6

24.3

27.8

31.3

33.6

Profit Before Tax (statutory)

 

 

(4.1)

(0.2)

9.6

18.1

22.2

24.7

25.8

21.1

23.5

27.3

32.0

Tax

1.4

0.3

(1.0)

(2.7)

(4.1)

(4.5)

(5.4)

(3.8)

(5.1)

(5.7)

(6.0)

Profit After Tax (norm)

3.1

7.4

11.4

17.0

19.6

20.6

24.1

20.2

23.2

26.1

28.0

Profit After Tax (statutory)

(2.6)

0.1

8.6

15.3

18.0

20.2

20.4

17.3

18.4

21.6

26.0

Average Number of Shares Outstanding (m)

295.8

297.5

297.5

298.9

299.7

303.1

305.4

307.3

308.6

309.3

309.3

EPS - normalised (p) - Edison

 

 

1.05

2.47

3.84

5.70

6.53

6.80

7.89

6.57

7.52

8.43

9.06

EPS - normalised (p)

 

 

0.88

2.31

3.67

5.53

6.35

6.66

7.75

6.43

7.38

8.29

8.92

EPS - statutory (p)

 

 

(0.89)

0.05

2.89

5.13

6.02

6.66

6.68

5.63

5.96

6.98

8.42

Dividend per share (p)

0.0

0.5

1.5

2.3

4.3

2.8

2.9

2.9

3.1

3.3

3.6

Gross Margin (%)

5.8

7.4

8.3

9.9

10.7

11.0

10.7

9.3

9.9

10.8

11.1

EBITDA Margin (%)

5.2

6.7

7.9

9.8

10.6

10.5

10.1

8.5

9.4

10.4

10.6

Operating Margin - Edison (%)

3.6

4.9

6.4

8.4

9.3

9.2

8.9

7.3

8.0

8.9

9.1

BALANCE SHEET

Fixed Assets

 

 

147.7

145.1

149.3

148.3

154.5

163.0

203.8

230.1

228.5

227.1

230.2

Intangible Assets

64.6

61.8

59.2

56.3

54.8

54.7

78.1

95.4

91.0

86.9

85.4

Tangible Assets

74.1

76.6

77.4

78.9

81.2

84.0

99.0

101.5

106.4

109.0

111.4

Investments

9.0

6.7

12.7

13.1

18.5

24.3

26.7

33.2

31.1

31.2

33.4

Current Assets

 

 

72.2

76.3

75.1

107.1

99.2

91.8

127.4

107.7

104.0

106.0

112.4

Stocks

5.8

4.8

5.3

7.8

9.6

8.9

6.9

10.2

11.5

12.3

13.5

Debtors

60.8

64.6

50.7

66.5

56.4

57.7

76.1

72.4

86.5

93.6

97.0

Cash

5.5

6.9

19.0

32.8

33.1

25.2

44.5

25.1

6.0

0.1

1.9

Current Liabilities

 

 

(57.9)

(59.7)

(58.2)

(78.7)

(66.1)

(58.6)

(106.4)

(85.4)

(82.6)

(75.4)

(75.5)

Creditors

(52.7)

(59.5)

(58.1)

(78.5)

(65.9)

(58.6)

(87.0)

(79.5)

(76.7)

(71.3)

(73.1)

Short term borrowings

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.0)

(19.4)

(5.9)

(5.9)

(4.2)

(2.4)

Long Term Liabilities

 

 

(18.5)

(21.1)

(17.9)

(22.5)

(18.7)

(21.2)

(41.2)

(50.8)

(43.9)

(39.7)

(37.3)

Long term borrowings

(0.0)

(0.6)

(0.4)

(0.2)

(0.0)

0.0

(8.8)

(14.9)

(9.0)

(4.8)

(2.4)

Other long term liabilities

(18.5)

(20.5)

(17.5)

(22.3)

(18.6)

(21.2)

(32.4)

(35.9)

(34.9)

(34.9)

(34.9)

Net Assets

 

 

143.4

140.6

148.2

154.2

169.0

175.0

183.7

201.6

206.0

218.0

229.7

CASH FLOW

Operating Cash Flow

 

 

2.1

11.4

24.8

27.4

22.9

18.0

28.0

30.0

16.4

33.3

37.8

Net Interest

(0.8)

(0.8)

(0.2)

(0.1)

(0.2)

(0.4)

(0.6)

(0.7)

(1.1)

(1.1)

(0.9)

Tax

0.4

(1.0)

(0.9)

(2.4)

(3.9)

(3.4)

(6.0)

(4.6)

(6.8)

(5.1)

(5.7)

Capex

(1.5)

(1.3)

(4.3)

(5.3)

(5.4)

(6.3)

(6.2)

(6.5)

(9.9)

(8.0)

(8.0)

Acquisitions/disposals

(3.5)

(1.7)

(4.1)

(0.4)

(5.5)

(4.2)

(13.4)

(19.9)

(0.5)

(7.1)

(4.5)

Financing

44.8

0

0

0

0

1.7

0

0

1

0

0

Dividends

0.0

0.0

(3.0)

(5.1)

(7.5)

(13.4)

(8.9)

(8.9)

(9.3)

(9.6)

(10.4)

Net Cash Flow

41.5

6.7

12.4

14.0

0.4

(8.0)

(7.0)

(10.3)

(10.7)

2.5

8.3

Opening net debt/(cash)

 

 

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(16.4)

(4.4)

8.8

8.8

Finance lease - cash

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

(0.2)

(1.8)

(1.7)

(2.4)

(2.4)

(2.4)

Other

0.2

(0.6)

0.2

0

0.2

0

0

(0)

(0)

(0)

0

Closing net debt/(cash)

 

 

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(16.4)

(4.4)

8.8

8.8

2.9

IFRS 16 leases

11.4

11.1

10.9

10.9

10.9

Source: company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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General disclaimer and copyright

This report has been commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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GB Group — Strong organic growth in H122

GB Group (GBG) reported a strong performance in H122, with organic constant currency revenue growth of 12.6% y-o-y and an adjusted operating margin of 25.5%. The Acuant acquisition completed on 29 November and the group’s immediate focus is on combining the two companies and pushing forward with growth plans. Our forecasts are substantially unchanged.

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