Severfield — FY24 in line, but risks edge up further on

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 — FY24 in line, but risks edge up further on

Severfield’s AGM statement highlights that FY24 is expected be in line with management expectations and that the quality of the orderbooks – both in the UK and Europe, and India – remains a key support for the future. That said, the outlook for the UK and continental Europe is less robust in the short term than it was due to the impact of high inflation and the rising interest rate cycle. The FY24e P/E rating of c 7x remains comfortably below the long-term average of 10.0x, implying that some risk is discounted in the rating. The stock yields more than 5%.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Severfield

FY24 in line, but risks edge up further on

AGM trading update

Construction and materials

8 September 2023

Price

62p

Market cap

£192m

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

(12.0)

0.5

6.6

Rel (local)

(10.5)

3.2

4.6

52-week high/low

75.0p

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

Interims

21 November 2023

Year-end trading update

March 2024

Analyst

Andy Murphy

+44 (0)20 3077 5700

Severfield is a research client of Edison Investment Research Limited

Severfield’s AGM statement highlights that FY24 is expected be in line with management expectations and that the quality of the orderbooks – both in the UK and Europe, and India – remains a key support for the future. That said, the outlook for the UK and continental Europe is less robust in the short term than it was due to the impact of high inflation and the rising interest rate cycle. The FY24e P/E rating of c 7x remains comfortably below the long-term average of 10.0x, implying that some risk is discounted in the rating. The stock yields more than 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

8.6

5.0

03/23

491.8

32.5

8.4

3.4

7.4

5.5

03/24e

566.5

35.2

8.9

3.6

7.0

5.8

03/25e

589.2

37.5

9.5

3.8

6.5

6.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

UK order books remain elevated; Indian book grows

The AGM trading update confirmed that trading in the first five months of FY24 was in line with Severfield’s expectations and that its cash and balance sheet positions remained strong. Furthermore, its UK and Europe order book continued to be high quality and remained elevated at £479m as at 1 September 2023, modestly down from £510m three months before. The decline should be seen in the context of the November 2018 to November 2020 period, where the order book averaged £280m. In India, the reverse was true, with strong underlying demand resulting in a material increase in the order book from £139m on 1 June to £170m on 1 September.

Strength, but market shows pockets of weakness

Since 1 June, Severfield has secured high-quality new work and variations to existing contracts, which provides good visibility into 2024 and beyond. This was supported in the UK and Europe by the recent Voortman Steel Construction acquisition, which is integrating well. However, the high inflation and rising interest rate environment has caused some delays in converting pipeline opportunities into firm orders, particularly in the distribution sector. Challenging market conditions were also a factor in Sunset Studios’ decision to pause construction of a new base in Hertfordshire. This has been removed from the orderbook, but the project itself has not been formally cancelled.

Valuation: Continues to indicate material upside

Given the strong order books, we would argue that the medium- to long-term outlook for Severfield remains encouraging. We have made no changes to our forecasts for FY24 and FY25, but it should be noted that the markets are less strong than they were in the summer and that, further out, risks have begun to edge up. The company is trading on an FY24e P/E of 7x, which compares favourably with the long-term average of 10x. The yield of more than 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

8.40

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

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