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Research: Industrials
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.
Written by
Severfield |
FY20 in line, COVID-19 muddies trading outlook |
Year-end and COVID-19 update |
Construction & materials |
23 April 2020 |
Share price performance
Business description
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Severfield is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS** |
P/E |
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
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