Severfield — Better revenue, margin and cash progress

Wheaton Precious Metals (TSX: WPM)

Last close As at 21/02/2024

CAD55.00

−4.78 (−8.00%)

Market capitalisation

CAD24,915m

More on this equity

Research: Metals & Mining

Severfield — Better revenue, margin and cash progress

FY17 has seen a strong close and we have increased FY17 and FY18 estimates as a result. Margin improvement has been a key focus, but this successful trading period shows through in a broader number of areas. Severfield’s full year results are scheduled for 14 June; order book progression and revenue run rates at that time will inform FY18 prospects more fully.

Analyst avatar placeholder

Written by

Metals & Mining

Severfield

Better revenue, margin and cash progress

FY17 year-end update

Construction & materials

29 March 2017

Price

80.63p

Market cap

£241m

Net cash (£m) at end September 2016

24.2

Shares in issue

298.9m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.0

6.1

49.3

Rel (local)

1.6

1.8

25.4

52-week high/low

81.8p

43.8p

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

FY17 results

14 June 2017

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

FY17 has seen a strong close and we have increased FY17 and FY18 estimates as a result. Margin improvement has been a key focus, but this successful trading period shows through in a broader number of areas. Severfield’s full year results are scheduled for 14 June; order book progression and revenue run rates at that time will inform FY18 prospects more fully.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/15

201.5

8.8

2.5

0.5

32.3

0.6

03/16

239.4

13.7

3.8

1.5

21.2

1.9

03/17e

263.2

20.1

5.6

2.0

14.4

2.5

03/18e

263.2

21.4

6.0

2.2

13.4

2.7

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

Strong revenue growth in H2, margins also improve

Severfield’s UK order book began to pick up at the beginning of 2016 (from c £185m in November 2015 to £315m a year later) and this has progressively fed into its FY17 trading performance. H117 revenue was comparable y-o-y, but a marked EBIT margin improvement was the standout feature of results for the first half. We had factored in a good sales uptick in H2 and it appears that the run rate has exceeded our expectations with y-o-y progress approaching 20%. Importantly, this has not come at the expense of margin, which looks to be at or around 8% in H2 (and 7.5% for the year, +180bp). Additionally, good cash collection and receipt of advance payments give our new estimated year-end cash position of c £30m (vs c £19m at the end of FY16). Taken together, this provides persuasive evidence that the enhanced commercial procedures across project lifecycles introduced a few years ago have been rigorously applied. Elsewhere, the Indian JV trading performance has been stable, as has the local order book (at £40m).

Estimates raised for FY17 and FY18

We have raised our FY17 and FY18 PBT estimates by c 9% and c 5% respectively with increased revenue and margin expectations in both years. FY17 UK revenue throughput – especially on larger projects – has brought the year-end order book back down to £267m; we would like to see how the pipeline converts to new work over the next quarter before taking a stronger view on FY18 prospects. Also, at this stage, we have left our dividend expectations unchanged; firming earnings estimates and good cash performance could support an enhanced payout in due course. Lastly, Alan Dunsmore (group FD for seven years) will assume the duties of Severfield’s CEO during his period of temporary absence through illness and John Dodds (chairman since 2011) will act as executive chairman on an interim basis.

Valuation: Driving outperformance

Severfield’s share price has now outperformed the FTSE All-Share Index over 12 months, 2017 to date and one-month periods. We believe the company is still on track to double FY16 PBT by FY20 (implicitly, PBT c £26m) and the closing year P/E of 14.4x and EV/EBITDA of 8.2x compress meaningfully on this basis.

Exhibit 1: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016

2017e

2018e

2019e

Year end 31 March

IFRS

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

12m to Mar

PROFIT & LOSS

Revenue

 

 

266.7

267.8

256.6

318.3

231.3

201.5

239.4

263.2

263.2

267.8

Cost of Sales

(242.6)

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(219.6)

(237.1)

(235.7)

(238.0)

Gross Profit

24.1

20.9

(12.2)

(12.7)

13.5

14.9

19.8

26.0

27.5

29.7

EBITDA

 

 

21.6

19.5

(13.6)

(13.6)

12.0

13.6

18.9

25.7

27.2

29.5

Operating Profit - Edison

 

 

17.1

15.0

(17.7)

(18.6)

8.4

10.0

15.2

21.8

23.0

25.0

Net Interest

(0.9)

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.2)

(0.1)

(0.1)

0.0

Associates

(0.4)

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.0

0.0

0.0

SBP

(0.0)

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(1.1)

(1.5)

(1.5)

(1.5)

Intangible Amortisation

(2.7)

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.7)

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(1.4)

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.9)

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

15.8

10.6

(19.1)

(20.9)

4.5

8.8

13.7

20.1

21.4

23.5

Profit Before Tax (norm)

 

 

15.3

10.1

(19.6)

(21.5)

4.0

8.3

13.2

19.6

20.9

23.0

Profit Before Tax (FRS 3)

 

 

11.1

6.8

(23.3)

(28.9)

(4.1)

(0.2)

9.6

17.0

19.2

23.0

Tax

(3.5)

(0.9)

3.9

5.7

1.4

0.3

(1.0)

(3.2)

(3.5)

(3.8)

Profit After Tax (norm)

11.7

7.7

(16.2)

(17.9)

3.1

7.4

11.4

16.8

17.9

19.7

Profit After Tax (FRS 3)

7.6

5.8

(19.4)

(23.1)

(2.6)

0.1

8.6

13.8

15.7

19.2

Average Number of Shares Outstanding (m)

89.0

89.3

89.3

89.3

295.8

297.5

297.5

298.5

298.5

298.5

EPS - normalised (p) - Edison

 

 

6.82

4.51

(9.42)

(10.42)

1.05

2.47

3.84

5.64

6.01

6.59

EPS - normalised (p)

 

 

6.51

4.21

(9.72)

(9.45)

0.88

2.31

3.67

5.47

5.84

6.42

EPS - FRS 3 (p)

 

 

4.47

3.41

(11.33)

(13.49)

(0.89)

0.05

2.89

4.64

5.26

6.42

Dividend per share (p)

7.5

5.0

1.5

0.8

0.0

0.5

1.5

2.0

2.2

2.4

Gross Margin (%)

9.0

7.8

-4.8

-4.0

5.8

7.4

8.3

9.9

10.4

11.1

EBITDA Margin (%)

8.1

7.3

-5.3

-4.3

5.2

6.7

7.9

9.8

10.3

11.0

Operating Margin - Edison (%)

6.4

5.6

-6.9

-5.8

3.6

4.9

6.4

8.3

8.8

9.4

BALANCE SHEET

Fixed Assets

 

 

165.0

156.9

155.6

154.9

147.7

145.1

149.3

149.0

148.6

149.6

Intangible Assets

75.2

72.9

70.4

69.8

64.6

61.8

59.2

56.4

54.7

54.7

Tangible Assets

82.9

79.6

76.2

76.1

74.1

76.6

77.4

79.3

80.1

80.7

Investments

6.9

4.4

8.9

8.9

9.0

6.7

12.7

13.2

13.7

14.2

Current Assets

 

 

88.1

100.5

69.8

80.5

72.2

76.3

75.1

92.4

104.4

118.2

Stocks

12.6

9.1

7.1

8.2

5.8

4.8

5.3

5.7

5.7

5.7

Debtors

71.9

89.2

61.2

71.6

60.8

64.6

50.7

55.2

56.0

57.6

Cash

3.6

2.3

1.4

0.7

5.5

6.9

19.0

31.5

42.7

54.9

Current Liabilities

 

 

(99.8)

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(58.2)

(66.9)

(67.4)

(68.3)

Creditors

(81.2)

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(58.1)

(66.8)

(67.2)

(68.1)

Short term borrowings

(18.6)

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(22.3)

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(17.9)

(23.4)

(23.4)

(23.4)

Long term borrowings

0.0

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.4)

(0.3)

(0.3)

(0.3)

Other long term liabilities

(22.3)

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.5)

(23.1)

(23.1)

(23.1)

Net Assets

 

 

130.9

132.3

106.6

102.4

143.4

140.6

148.2

151.1

162.2

176.1

CASH FLOW

Operating Cash Flow

 

 

(5.8)

(5.4)

12.9

3.1

2.1

11.4

24.8

26.0

26.1

27.9

Net Interest

(0.8)

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.2)

(0.1)

(0.1)

0.0

Tax

(5.4)

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(0.9)

(1.9)

(3.2)

(3.5)

Capex

(2.8)

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.3)

(5.8)

(5.0)

(5.0)

Acquisitions/disposals

(2.9)

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.1)

(0.5)

(0.5)

(0.5)

Financing

0

0

0

0.0

44.8

0

0

0

0

0

Dividends

(8.9)

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(5.1)

(6.1)

(6.7)

Net Cash Flow

(26.6)

(16.3)

1.7

(9.7)

41.5

6.7

12.4

12.6

11.2

12.2

Opening net debt/(cash)

 

 

(11.5)

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(18.4)

(31.0)

(42.2)

HP finance leases initiated

0

0.0

0.1

0.0

(0.2)

(0.3)

(0.2)

(0.1)

0.0

0.0

Other

0

(0)

(0)

(0)

0.2

(0.6)

0.2

0

0

(0)

Closing net debt/(cash)

 

 

15.0

31.3

29.7

41.2

(0.3)

(6.1)

(18.4)

(31.0)

(42.2)

(54.4)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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 2017 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 2017. “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 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. 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 2017 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 2017. “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 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Wheaton Precious Metals

View All
Wheaton-Precious-Metals_resized

Metals & Mining

Wheaton Precious Metals — Putting net cash to work

Wheaton-Precious-Metals_resized

Metals & Mining

Wheaton Precious Metals — Honing Q323 numbers

Metals & Mining

Wheaton Precious Metals — Peerless

Latest from the Metals & Mining sector

View All Metals & Mining content

Metals & Mining

Pan African Resources — A happy valentine

Endeavour-Mining_resized

Metals & Mining

Endeavour Mining — Looking to FY24 and beyond

Severfield-Rowen — Better revenue, margin and cash progress

FY17 has seen a strong close and we have increased FY17 and FY18 estimates as a result. Margin improvement has been a key focus, but this successful trading period shows through in a broader number of areas. Severfield’s full year results are scheduled for 14 June; order book progression and revenue run rates at that time will inform FY18 prospects more fully.

Continue Reading

Subscribe to Edison

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

Sign up for free