Severfield — FY20 in line, COVID-19 muddies trading outlook

Severfield (LSE: SFR)

Last close As at 19/07/2024

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Research: Industrials

Severfield — FY20 in line, COVID-19 muddies trading outlook

Severfield has confirmed there was no material impact on trading from COVID-19 in FY20. Its end March net funds position was above our expectations and its stated facility headroom was c £50m at that time. Understandably, the start to FY21 has seen disruption both in the UK, and from India’s lockdown status. The impact on trading is difficult to assess accurately so we are withdrawing our estimates beyond FY20 until the scale of the overall business impact can be better quantified.

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Industrials

Severfield

FY20 in line, COVID-19 muddies trading outlook

Year-end and

COVID-19 update

Construction & materials

23 April 2020

Price

66.2p

Market cap

£201m

Net cash* (£m) at end March 2020
*Company guidance

16

Shares in issue

305.9m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.1

(23.0)

(8.2)

Rel (local)

(3.4)

2.1

18.1

52-week high/low

93p

60p

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 being expanded.

Next events

FY20 results

17 June

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Severfield is a research client of Edison Investment Research Limited

Severfield has confirmed there was no material impact on trading from COVID-19 in FY20. Its end March net funds position was above our expectations and its stated facility headroom was c £50m at that time. Understandably, the start to FY21 has seen disruption both in the UK, and from India’s lockdown status. The impact on trading is difficult to assess accurately so we are withdrawing our estimates beyond FY20 until the scale of the overall business impact can be better quantified.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS**
(p)

P/E
(x)

Yield**
(%)

03/18**

274.2

24.1

6.5

4.3

10.1

6.5

03/19

274.9

25.1

6.8

2.8

9.7

4.2

03/20e

328.2

28.0

7.6

3.0

8.7

4.6

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.

FY20 unaffected by coronavirus, focus on cash

Severfield’s FY20 trading year saw minimal impact from the developing COVID-19 outbreak and we assume is on track to meet management’s inferred PBT target of at least £26m. (Our unchanged £28m estimate includes c £1m contribution from Harry Peers, acquired since the original target was set in FY16.) FY20 closed with a £16m net funds position compared to our expected c £9m, suggesting good cash collection in Q4.

FY21: UK largely operational, locked down in India

At the beginning of FY21, main contractor behaviours have included continuing, closing and some cases re-opening UK project sites. Severfield is operating on c 80% (likely to be 50–60) of its live UK projects under revised working practices in line with government and updated Construction Leadership Council guidelines. Additionally, all five of its fabrication facilities are operational, again consistent with current working practice guidelines. In both environments, knock-on effects on site efficiencies are to be expected and along with actual project volume difficult for us to quantify at this time. We understand that supply chain conditions are stable at present. The latest order book of £293m (£30m below the 1 November record level) reflects both the cycle through of work on hand and new wins, including post general election awards, in what remains a competitive UK market.

Severfield’s Indian JV has completed its fab facility expansion but the construction industry has been in full lockdown since mid-March. Steel industry production has been significantly stepped down also. The JV’s prevailing order book (£112m, £22m lower than last reported, also a record high) has a mix of projects slightly more in favour of commercial work and a pipeline still said to be active.

Management comments that it is not possible to predict the FY21 outturn. As elsewhere, actions are being taken to control discretionary opex/capex items along with other deferrals (eg tax, quarterly loan repayments) to manage cash flow items. No reference was made to the FY20 final dividend but we assume this will be formally reviewed when FY20 results are announced in June.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017

2018

2019

2020e

Year end 31 March

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

PROFIT & LOSS

Revenue

 

 

231.3

201.5

239.4

262.2

274.2

274.9

328.2

Cost of Sales

(217.8)

(186.7)

(219.6)

(236.3)

(244.9)

(244.6)

(294.2)

Gross Profit

13.5

14.9

19.8

25.9

29.3

30.3

34.0

EBITDA

 

 

12.0

13.6

18.9

25.7

29.1

29.0

32.5

Operating Profit - Edison

 

 

8.4

10.0

15.2

22.1

25.4

25.3

28.2

Net Interest

(0.6)

(0.5)

(0.2)

(0.2)

(0.2)

(0.2)

(0.7)

Associates

(3.0)

(0.2)

(0.2)

0.5

0.9

1.7

2.4

SBP

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(1.6)

(2.0)

Intangible Amortisation

(2.7)

(2.6)

(2.6)

(2.6)

(1.3)

0.0

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.5)

(0.6)

(0.4)

(0.4)

Exceptionals

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

(1.0)

Profit Before Tax (norm) - Edison

 

4.5

8.8

13.7

20.3

24.1

25.1

28.0

Profit Before Tax (norm)

 

 

4.0

8.3

13.2

19.8

23.5

24.7

27.6

Profit Before Tax (statutory)

 

(4.1)

(0.2)

9.6

18.1

22.2

24.7

26.6

Tax

1.4

0.3

(1.0)

(2.7)

(4.1)

(4.5)

(4.7)

Profit After Tax (norm)

3.1

7.4

11.4

17.0

19.6

20.6

23.3

Profit After Tax (statutory)

(2.6)

0.1

8.6

15.3

18.0

20.2

21.9

Average Number of Shares Outstanding (m)

295.8

297.5

297.5

298.9

299.7

303.1

305.0

EPS - normalised (p) - Edison

 

 

1.05

2.47

3.84

5.70

6.53

6.80

7.64

EPS - normalised (p)

 

 

0.88

2.31

3.67

5.53

6.35

6.66

7.50

EPS - statutory (p)

 

 

(0.89)

0.05

2.89

5.13

6.02

6.66

7.17

Dividend per share (p)

0.0

0.5

1.5

2.3

4.3

2.8

3.0

Gross Margin (%)

5.8

7.4

8.3

9.9

10.7

11.0

10.3

EBITDA Margin (%)

5.2

6.7

7.9

9.8

10.6

10.5

9.9

Operating Margin - Edison (%)

3.6

4.9

6.4

8.4

9.3

9.2

8.6

BALANCE SHEET

Fixed Assets

 

 

147.7

145.1

149.3

148.3

154.5

163.0

197.2

Intangible Assets

64.6

61.8

59.2

56.3

54.8

54.7

69.7

Tangible Assets

74.1

76.6

77.4

78.9

81.2

84.0

100.2

Investments

9.0

6.7

12.7

13.1

18.5

24.3

27.3

Current Assets

 

 

72.2

76.3

75.1

107.1

99.2

91.8

103.4

Stocks

5.8

4.8

5.3

7.8

9.6

8.9

11.0

Debtors

60.8

64.6

50.7

66.5

56.4

57.7

69.1

Cash

5.5

6.9

19.0

32.8

33.1

25.2

23.4

Current Liabilities

 

 

(57.9)

(59.7)

(58.2)

(78.7)

(66.1)

(58.6)

(72.9)

Creditors

(52.7)

(59.5)

(58.1)

(78.5)

(65.9)

(58.6)

(72.9)

Short term borrowings

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.0)

0.0

Long Term Liabilities

 

 

(18.5)

(21.1)

(17.9)

(22.5)

(18.7)

(21.2)

(47.0)

Long term borrowings

(0.0)

(0.6)

(0.4)

(0.2)

(0.0)

0.0

(14.0)

Other long term liabilities

(18.5)

(20.5)

(17.5)

(22.3)

(18.6)

(21.2)

(33.0)

Net Assets

 

 

143.4

140.6

148.2

154.2

169.0

175.0

180.7

CASH FLOW

Operating Cash Flow

 

 

2.1

11.4

24.8

27.4

22.9

18.0

27.6

Net Interest

(0.8)

(0.8)

(0.2)

(0.1)

(0.2)

(0.4)

(0.6)

Tax

0.4

(1.0)

(0.9)

(2.4)

(3.9)

(3.4)

(6.2)

Capex

(1.5)

(1.3)

(4.3)

(5.3)

(5.4)

(6.3)

(7.4)

Acquisitions/disposals

(3.5)

(1.7)

(4.1)

(0.4)

(5.5)

(4.2)

(18.5)

Financing

44.8

0

0

0

0

1.7

0

Dividends

0.0

0.0

(3.0)

(5.1)

(7.5)

(13.4)

(8.9)

Net Cash Flow

41.5

6.7

12.4

14.0

0.4

(8.0)

(14.0)

Opening net debt/(cash)

 

 

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

Finance lease - cash

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

(0.2)

(1.7)

Other

0.2

(0.6)

0.2

0

0.2

0

(0)

Closing net debt/(cash)

 

 

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(9.4)

IFRS16 leases

10.1

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 2020 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

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 2020 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

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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