Severfield — FY23 results highlight progress and strength

Severfield (LSE: SFR)

Last close As at 18/05/2024

GBP0.71

0.20 (0.28%)

Market capitalisation

GBP219m

More on this equity

Research: Industrials

Severfield — FY23 results highlight progress and strength

FY23 results highlight that we believe revenue quality remains materially underappreciated by the market (see our June update note), especially now the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure. In our view, the outlook in the UK, continental Europe, especially post recent M&A, and India is not fully reflected in the FY24e P/E rating of c 7.5x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield over 5%.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Severfield

FY23 results highlight progress and strength

Post preliminary comment

Construction and materials

16 June 2023

Price

71.2p

Market cap

£220m

Estimated net debt (£m) at 31 March 2024

30.1

Shares in issue

309.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.5

17.9

14.5

Rel (local)

10.5

13.8

10.4

52-week high/low

71.2p

48.0p

Business description

Severfield is a market-leading UK structural steelwork fabricator operating across a broad range of market sectors, now with a Dutch subsidiary. An Indian facility undertakes structural steelwork projects for the local market in a joint venture with India’s largest steel producer, JSW Steel.

Next events

AGM

6 September 2023

Interim results

21 November 2023

Analyst

Andy Murphy

+44 (0)20 3077 5700

Severfield is a research client of Edison Investment Research Limited

FY23 results highlight that we believe revenue quality remains materially underappreciated by the market (see our June update note), especially now the UK and EU are embarking on huge investment programmes to renew and upgrade infrastructure. In our view, the outlook in the UK, continental Europe, especially post recent M&A, and India is not fully reflected in the FY24e P/E rating of c 7.5x, which is comfortably below the long-term average of 10.0x. Our positive stance is supported by the company’s strong balance sheet, progressive dividend and yield over 5%.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/22

403.6

27.1

7.2

3.1

9.9

4.4

03/23

491.8

32.5

8.4

3.4

8.5

4.8

03/24e

566.5

35.2

8.9

3.6

8.0

5.1

03/25e

589.2

37.5

9.5

3.8

7.5

5.3

Note: *PBT and EPS (diluted) are underlying, on a company basis.

FY profits exceed expectations and offer upside

Although FY23 revenue of £491.8m, up 21.9%, was in line with our expectations, underlying operating profit, including joint ventures (JVs) and associates, materially exceeded our forecast of £33.0m, coming in at £35m, up 23.9%, suggesting management’s action to offset inflationary pressures has been effective. Underlying operating margins, ex JVs and associates, were maintained at 6.7%. The Indian JV performed well, generating revenue of £137.7m and an EBITDA of £11.0m. Severfield’s 50% share of post-tax profit increased 73% to £1.3m. Group underlying diluted EPS was up 16.7% to 8.4p and the company declared a 3.4p total dividend, up 10%. Net debt reversed from £18.4m to net cash of £2.7m, boosted by a £4m working capital unwind and a £10m forward payment from a client.

Market undervalues the quality of the income stream

We argued in our recent note that we believe the quality of Severfield’s revenue streams are underappreciated as the total value of infrastructure in the UK increases every year and continues to age. For the foreseeable future, government investment in infrastructure, in both the UK and the EU, is likely to be underpinned by investment plans to renew and to decarbonise. We believe Severfield’s new divisional structure and Project Horizon should allow it to address these plans and continue to take market share in the UK, EU and India.

Valuation: P/E of 7.5x well below LT average of 10.0x

The total UK and Europe order book stood at a record £510m in March 2023 (£464m in November) with a solid pipeline behind it. In India, the JV order book stood at £139m (£143m in November), again with a good tailwind of prospects. Therefore, we would argue that the outlook for Severfield remains very encouraging. Furthermore, it has managed inflationary pressures well and these are now abating. Although we have made no material changes to forecasts, we believe the risks are to the upside. The company is trading on an FY24e P/E of 7.5x, which compares favourably with the long-term average ratio of 10x. The yield of over 5% is an added attraction.

Exhibit 1: Financial summary

£m

2021

2022

2023

2024e

2025e

2026e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

363.3

403.6

491.8

566.5

589.2

612.7

EBITDA

 

 

29.6

33.4

40.4

45.0

47.5

50.2

Normalised operating profit

 

 

25.1

28.2

35.0

38.2

40.5

43.2

Operating profit (U/L, Company basis, inc JVs)

25.1

28.2

35.0

38.2

40.5

43.2

Amortisation of acquired intangibles

(2.8)

(5.2)

(3.3)

(5.2)

(3.3)

(5.2)

Exceptionals

(0.4)

(0.7)

(2.0)

0.0

0.0

0.0

Share-based payments

0.6

1.0

3.4

1.0

1.0

1.0

Other

0.4

0.4

0.6

0.4

0.4

0.4

Reported operating profit

22.9

23.8

33.6

34.4

38.5

39.4

Net Interest

(0.8)

(1.1)

(2.5)

(3.0)

(3.0)

(3.0)

Exceptionals

(0.4)

(0.7)

(0.6)

(0.4)

(0.4)

(0.4)

Profit Before Tax (norm)

 

 

24.3

27.1

32.5

35.2

37.5

40.2

Profit before tax (U/L, Company basis)

 

24.3

27.1

32.5

35.2

37.5

40.2

Profit Before Tax (reported)

 

 

21.1

21.0

27.1

30.0

32.3

35.0

Reported tax

(3.8)

(5.4)

(5.5)

(7.5)

(8.1)

(8.7)

Profit After Tax (norm)

20.5

21.7

26.9

27.7

29.4

31.4

Profit After Tax (reported)

17.3

15.6

21.6

22.5

24.2

26.2

Net income (normalised)

20.5

21.7

26.9

27.7

29.4

31.4

Net income (reported)

17.3

15.6

21.6

22.5

24.2

26.2

Basic average number of shares outstanding (m)

307

309

310

310

310

310

EPS - basic reported (p)

 

 

5.63

5.05

6.97

7.27

7.82

8.47

EPS - basic normalised (p)

 

 

6.68

7.03

8.71

8.95

9.50

10.15

EPS - diluted normalised (p)

 

 

6.68

7.00

8.61

8.92

9.46

10.11

EPS - (U/L, diluted, Company basis) (p)

 

 

6.43

7.19

8.395

8.92

9.46

10.11

Dividend (p)

2.90

3.10

3.40

3.60

3.80

4.80

Revenue growth (%)

11.0

11.1

21.9

15.2

4.0

4.0

EBITDA Margin (%)

8.1

8.3

8.2

7.9

8.1

8.2

Normalised Operating Margin

6.9

7.0

7.1

6.7

6.9

7.0

BALANCE SHEET

Fixed Assets

 

 

230.1

230.1

228.4

255.1

259.0

263.9

Intangible Assets

95.4

92.5

89.3

89.5

89.7

89.9

Tangible Assets

91.7

91.4

92.1

118.9

121.9

124.9

Investments & other

43.0

46.1

47.0

46.7

47.4

49.1

Current Assets

 

 

107.7

140.7

136.6

194.9

202.2

209.7

Stocks

10.2

18.0

13.2

17.0

17.7

18.4

Debtors

67.8

117.9

109.7

164.3

170.9

177.7

Cash & cash equivalents

25.0

0.0

11.3

11.3

11.3

11.3

Other

4.6

4.8

2.3

2.3

2.3

2.3

Current Liabilities

 

 

(85.4)

(123.3)

(109.0)

(150.2)

(157.7)

(163.8)

Creditors

(77.8)

(111.7)

(102.7)

(143.9)

(151.4)

(157.5)

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

(5.9)

(5.9)

(4.2)

(4.2)

(4.2)

(4.2)

Other

(1.7)

(5.7)

(2.2)

(2.2)

(2.2)

(2.2)

Long Term Liabilities

 

 

(61.4)

(43.5)

(38.3)

(69.1)

(58.7)

(49.5)

Long term borrowings

(14.9)

(9.0)

(4.8)

(37.6)

(29.2)

(22.1)

Other long term liabilities

(46.5)

(34.5)

(33.5)

(31.5)

(29.5)

(27.5)

Shareholders' equity

 

 

190.9

204.0

217.7

230.8

244.8

260.3

CASH FLOW

Op Cash Flow before WC and tax

34.0

40.5

45.6

51.5

54.0

56.7

Working capital

(0.2)

(34.5)

13.8

(17.1)

0.3

(1.5)

Exceptional & other

(3.5)

(5.4)

(4.8)

(4.8)

(4.8)

(4.8)

Tax

(4.6)

(3.8)

(3.5)

(9.3)

(10.1)

(10.7)

Other

(0.2)

(2.4)

(0.8)

(4.3)

(5.1)

(6.1)

Net operating cash flow

 

 

25.3

(5.7)

50.3

16.0

34.2

33.6

Capex

(6.5)

(5.0)

(6.2)

(11.2)

(8.7)

(8.7)

Acquisitions/disposals

(19.9)

(0.5)

(8.5)

(22.6)

(1.5)

(1.5)

Net interest

(0.7)

(1.1)

(2.5)

(3.0)

(3.0)

(3.0)

Equity financing

0.4

0.9

0.0

1.0

1.0

1.0

Dividends

(8.9)

(9.2)

(9.9)

(10.5)

(11.1)

(11.8)

Other

(1.8)

(2.2)

(2.1)

(2.5)

(2.5)

(2.5)

Net Cash Flow

(12.0)

(22.8)

21.1

(32.8)

8.4

7.1

Opening net debt/(cash)

 

 

(16.4)

(4.4)

18.4

(2.7)

30.1

21.7

FX

0.0

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(4.4)

18.4

(2.7)

30.1

21.7

14.6

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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Severfield

View All

Latest from the Industrials sector

View All Industrials content

Research: Healthcare

Immix Biopharma — ATM completion may extend runway into H224

Immix Biopharma has completed its $5.0m at-the-market (ATM) offering program. The funding is as a result of the initial share sales agreement in March 2023 and is anticipated to further support Immix’s pipeline activities with the development of its key assets: the CAR-T treatment, NXC-201, and the tissue-specific therapeutic, IMX-110. We view the ATM offering as a positive, especially in light of the current macro funding environment for biotech companies.

Continue Reading

Subscribe to Edison

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

Sign up for free