Stable outlook

Severfield 10 September 2019 Update
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Severfield

Stable outlook

AGM update

Construction & materials

10 September 2019

Price

62.0p

Market cap

£188m

Net cash (£m) at end March 2019

25.2

Shares in issue

303.9m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

(14.3)

(18.2)

Rel (local)

(3.9)

(13.6)

(17.2)

52-week high/low

78.0p

61.0p

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 is fully operational.

Next events

FY18 final DPS to be paid

13 September

H120 results

26 November

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Severfield is a research client of Edison Investment Research Limited

An AGM update confirmed much of the year-end messaging and management expectations for FY20 are unchanged. Order book positions in the UK and India remain encouraging and there have been no discernible changes in pipeline opportunities. The earnings outlook appears solid and the 8.4x P/E and 4.9% prospective yield have appeal.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield**
(%)

03/18**

274.2

24.0

6.5

4.3

9.5

6.9

03/19

274.9

25.2

6.8

2.8

9.1

4.5

03/20e

285.9

27.3

7.4

3.0

8.4

4.9

03/21e

292.5

28.1

7.6

3.3

8.1

5.3

Note: *PBT and EPS are Edison normalised, excluding pension net finance costs, intangible amortisation and exceptional items. **FY18 DPS included a 1.7p special dividend.

Firm order books in the UK and India

The UK order book has nudged up further (£301m versus £295m in June) to the highest reported level since November 2016. Moreover, the mix is more diverse now than it was then with material order values on hand in four core sectors, only one large current project (KGX1, initially £50m) and a significant proportion is now outside the UK (in the Republic of Ireland and continental Europe). We believe comments relating to a greater H2 skew to trading performance in FY20 are a natural corollary of the shape of the order book build (+ c £65m between November 2018 and June 2019) necessitating more early-stage projects in H1 and greater profit recognition as they progress into H2. The fact that the order book has been sustained/increased a little indicates that intake has been comparable to throughput so far in FY20 and the run rate for the next 12 months (£281m) is around our current FY20 projection. Project selectivity has stood the company in good stead in recent years and execution against tenders remains key to margin development.

In India, the JV order book is also stable at a record £134m. Management cites an expected improving proportion of commercial project work in both order book and pipeline, which bodes well for future margin development. The capacity expansion at Bellary (+30,000 tonnes to 90,000 tonnes total, to complete by the end of this financial year) is underway, which will facilitate increased throughput of higher-margin commercial project work in due course.

Valuation: Solid performer in a weaker sector

Severfield’s share price is now down 13% year-to-date. To some extent this is understandable given downward revisions to UK construction and GDP expectations as the year has progressed and wider uncertainties prevail. However, the company’s order book has gone in the opposite direction and now has a greater non-UK hue and our estimates have not changed over the last 12 months. Consequently, the current year P/E and EV/EBITDA are now 8.4x and 4.9x, respectively, whereas the dividend yield is 4.9%.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017

2018

2019

2020e

2021e

2022e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

12m to Mar

PROFIT & LOSS

Revenue

 

 

231.3

201.5

239.4

262.2

274.2

274.9

285.9

292.5

296.5

Cost of Sales

(217.8)

(186.7)

(219.6)

(236.3)

(244.9)

(244.6)

(253.2)

(258.9)

(262.0)

Gross Profit

13.5

14.9

19.8

25.9

29.3

30.3

32.7

33.6

34.4

EBITDA

 

 

12.0

13.6

18.9

25.7

29.0

29.0

32.4

33.6

34.7

Operating profit - Edison  

8.4

10.0

15.2

22.1

25.4

25.4

28.3

29.0

29.6

Net Interest

(0.6)

(0.5)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.1)

(0.1)

Associates

(3.0)

(0.2)

(0.2)

0.5

0.9

1.7

1.2

1.3

2.2

SBP

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(1.6)

(2.0)

(2.0)

(2.0)

Intangible Amortisation

(2.7)

(2.6)

(2.6)

(2.6)

(1.3)

0.0

0.0

0.0

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

4.5

8.8

13.7

20.3

24.0

25.2

27.3

28.1

29.7

Profit Before Tax (norm)

 

 

4.0

8.3

13.2

19.8

23.5

24.7

26.8

27.6

29.2

Profit Before Tax (statutory)

 

(4.1)

(0.2)

9.6

18.1

22.2

24.7

26.8

27.6

29.2

Tax

1.4

0.3

(1.0)

(2.7)

(4.1)

(4.5)

(4.8)

(5.0)

(5.1)

Profit After Tax (norm)

3.1

7.4

11.4

17.0

19.5

20.7

22.5

23.2

24.6

Profit After Tax (statutory)

(2.6)

0.1

8.6

15.3

18.0

20.2

22.0

22.7

24.1

Avg number of shares outstanding (m)

295.8

297.5

297.5

298.9

299.7

303.1

303.5

303.5

303.5

EPS - norm (p) - Edison

 

 

1.05

2.47

3.84

5.70

6.52

6.82

7.40

7.64

8.10

EPS - norm (p)

 

 

0.88

2.31

3.67

5.53

6.35

6.65

7.24

7.47

7.94

EPS - statutory (p)

 

 

(0.89)

0.05

2.89

5.13

6.02

6.65

7.24

7.47

7.94

Dividend per share (p)

0.0

0.5

1.5

2.3

4.3

2.8

3.0

3.3

3.6

Gross Margin (%)

5.8

7.4

8.3

9.9

10.7

11.0

11.4

11.5

11.6

EBITDA Margin (%)

5.2

6.7

7.9

9.8

10.6

10.6

11.3

11.5

11.7

Operating Margin - Edison (%)

3.6

4.9

6.4

8.4

9.2

9.2

9.9

9.9

10.0

BALANCE SHEET

Fixed Assets

 

 

147.7

145.1

149.3

148.3

154.5

163.0

167.6

171.7

176.3

Intangible Assets

64.6

61.8

59.2

56.3

54.8

54.7

54.7

54.7

54.7

Tangible Assets

74.1

76.6

77.4

78.9

81.2

84.0

86.8

89.2

91.0

Investments

9.0

6.7

12.7

13.1

18.5

24.3

26.0

27.8

30.5

Current Assets

 

 

72.2

76.3

75.1

107.1

99.2

91.8

101.6

113.0

124.1

Stocks

5.8

4.8

5.3

7.8

9.6

8.9

9.2

10.4

11.6

Debtors

60.8

64.6

50.7

66.5

56.4

57.7

62.4

66.4

69.9

Cash

5.5

6.9

19.0

32.8

33.1

25.2

30.0

36.2

42.6

Current Liabilities

 

 

(57.9)

(59.7)

(58.2)

(78.7)

(66.1)

(58.6)

(60.7)

(61.8)

(62.7)

Creditors

(52.7)

(59.5)

(58.1)

(78.5)

(65.9)

(58.6)

(60.6)

(61.8)

(62.6)

Short term borrowings

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.0)

(0.0)

(0.0)

(0.0)

Long Term Liabilities

 

 

(18.5)

(21.1)

(17.9)

(22.5)

(18.7)

(21.2)

(21.2)

(21.2)

(21.2)

Long term borrowings

(0.0)

(0.6)

(0.4)

(0.2)

(0.0)

0.0

0.0

0.0

0.0

Other long term liabilities

(18.5)

(20.5)

(17.5)

(22.3)

(18.6)

(21.2)

(21.2)

(21.2)

(21.2)

Net Assets

 

 

143.4

140.6

148.2

154.2

169.0

175.0

187.3

201.7

216.5

CASH FLOW

Operating Cash Flow

 

 

2.1

11.4

24.8

27.4

22.9

18.0

27.3

28.0

29.2

Net Interest

(0.8)

(0.8)

(0.2)

(0.1)

(0.2)

(0.4)

(0.1)

(0.1)

(0.1)

Tax

0.4

(1.0)

(0.9)

(2.4)

(3.9)

(3.4)

(6.2)

(4.8)

(5.0)

Capex

(1.5)

(1.3)

(4.3)

(5.3)

(5.4)

(6.3)

(7.0)

(7.0)

(7.0)

Acquisitions/disposals

(3.5)

(1.7)

(4.1)

(0.4)

(5.5)

(4.2)

(0.5)

(0.5)

(0.5)

Financing

44.8

0

0

0

0

2

0

0

0

Dividends

0.0

0.0

(3.0)

(5.1)

(7.5)

(13.4)

(8.6)

(9.3)

(10.3)

Net Cash Flow

41.5

6.7

12.4

14.0

0.4

(8.0)

4.8

6.3

6.4

Opening net debt/(cash)

 

 

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(29.9)

(36.2)

Finance leases

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

(0.2)

0.0

0.0

0.0

Other

0.2

(0.6)

0.2

0

0

0

(0)

(0)

(0)

Closing net debt/(cash)

 

 

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(29.9)

(36.2)

(42.5)

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 £49,500 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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

1,185 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

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 £49,500 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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

1,185 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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