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GBP111m
Research: Industrials
Higher order books in the UK and India are a positive way to end FY19, which concluded in line with previous guidance. UK market conditions appear to be stable while India is continuing to strengthen. Year-end net cash is similar to H1, and slightly below where we had previously expected, but Severfield retains its conservative balance sheet position. Save for the net cash adjustment, our estimates are unchanged; the P/E rating reduces from 11.1x for the trailing year to 10.3x for FY20 with EV/EBITDA equivalents of 6.8x and 5.9x respectively.
Written by
Severfield |
Good end-FY19 order book momentum |
Year-end update |
Construction & materials |
29 April 2019 |
Share price performance
Business description
Next events
Analyst
Severfield is a research client of Edison Investment Research Limited |
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Higher order books in the UK and India are a positive way to end FY19, which concluded in line with previous guidance. UK market conditions appear to be stable while India is continuing to strengthen. Year-end net cash is similar to H1, and slightly below where we had previously expected, but Severfield retains its conservative balance sheet position. Save for the net cash adjustment, our estimates are unchanged; the P/E rating reduces from 11.1x for the trailing year to 10.3x for FY20 with EV/EBITDA equivalents of 6.8x and 5.9x respectively.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS** |
P/E |
Yield** |
03/17 |
262.2 |
20.3 |
5.7 |
2.3 |
13.3 |
3.0 |
03/18** |
274.2 |
24.0 |
6.5 |
4.3 |
11.7 |
5.7 |
03/19e |
279.2 |
25.0 |
6.8 |
2.8 |
11.1 |
3.7 |
03/20e |
285.9 |
27.3 |
7.4 |
3.0 |
10.3 |
4.0 |
Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items. **FY18 DPS includes a 1.7p special dividend.
Solid UK operational performance and rising orders
The reported year-end order book of £274m is Severfield’s highest in the UK since November 2016, up from £230m at the interim stage. New project work in the Netherlands represents c £10m of this and traction in one of three highlighted new growth areas is to be welcomed. There are fewer large live projects on hand (the Google HQ is the largest) but underlying margins are understood to be stable with operational performance and workflow mix effects balancing out. We believe the order intake pattern will influence the shape of FY20 trading. New business wins have continued into the new financial year and management still sees a stable pipeline of opportunities.
Building order book and capacity in India
At £149m, the Indian JV order book has climbed to another record level (a further material increase from £124m at the H119 stage) reinforcing confidence in capacity expansion. This is underway (adding c 30,000 tonnes or c 50% to fabrication capacity), with completion expected around the end of FY20. Importantly, the commercial mix of the order book is improving (to nearer 50% of the total now) and this should have positive implications for margins as the projects move through to construction completion over the next couple of years.
Valuation: Positive sentiment trigger
Having trading around its year low in March, Severfield’s share price has recovered and regained the levels last seen following its H1 results in November and, as a result, it is up c 4% YTD (versus c 11% for the FTSE All Share Index.) Our post results valuation comments remain valid; the prospective P/E, EV/EBITDA and dividend yields of 10.3x, 5.9x and 4.0% all represent reasonable entry points in our view. We have previously flagged order book development as a potential positive trigger for sentiment and the latest newsflow is certainly providing good grounds for such a response.
Exhibit 1: Financial summary
£m |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
2021e |
|||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
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 |
12m to Mar |
12m to Mar |
||||
PROFIT & LOSS |
||||||||||||||
Revenue |
|
|
267.8 |
256.6 |
318.3 |
231.3 |
201.5 |
239.4 |
262.2 |
274.2 |
279.2 |
285.9 |
292.5 |
|
Cost of Sales |
(246.9) |
(268.8) |
(330.9) |
(217.8) |
(186.7) |
(219.6) |
(236.3) |
(244.9) |
(249.0) |
(253.2) |
(258.9) |
|||
Gross Profit |
20.9 |
(12.2) |
(12.7) |
13.5 |
14.9 |
19.8 |
25.9 |
29.3 |
30.3 |
32.7 |
33.6 |
|||
EBITDA |
|
|
19.5 |
(13.6) |
(13.6) |
12.0 |
13.6 |
18.9 |
25.7 |
29.0 |
30.2 |
32.9 |
34.1 |
|
Operating Profit - Edison |
|
|
15.0 |
(17.7) |
(18.6) |
8.4 |
10.0 |
15.2 |
22.1 |
25.4 |
26.1 |
28.3 |
29.0 |
|
Net Interest |
(1.6) |
(1.6) |
(2.0) |
(0.6) |
(0.5) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.1) |
|||
Associates |
(2.5) |
0.2 |
(0.3) |
(3.0) |
(0.2) |
(0.2) |
0.5 |
0.9 |
1.1 |
1.2 |
1.3 |
|||
SBP |
(0.3) |
(0.0) |
(0.1) |
(0.2) |
(0.5) |
(1.1) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
(2.0) |
|||
Intangible Amortisation |
(2.7) |
(2.7) |
(3.5) |
(2.7) |
(2.6) |
(2.6) |
(2.6) |
(1.3) |
0.0 |
0.0 |
0.0 |
|||
Pension Net Finance Costs |
(0.5) |
(0.5) |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
|||
Exceptionals |
(0.6) |
(1.0) |
(3.8) |
(5.3) |
(5.9) |
(0.9) |
0.8 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Profit Before Tax (norm) - Edison |
|
10.6 |
(19.1) |
(20.9) |
4.5 |
8.8 |
13.7 |
20.3 |
24.0 |
25.0 |
27.3 |
28.1 |
||
Profit Before Tax (norm) |
|
|
10.1 |
(19.6) |
(21.5) |
4.0 |
8.3 |
13.2 |
19.8 |
23.5 |
24.5 |
26.8 |
27.6 |
|
Profit Before Tax (statutory) |
|
|
6.8 |
(23.3) |
(28.9) |
(4.1) |
(0.2) |
9.6 |
18.1 |
22.2 |
24.5 |
26.8 |
27.6 |
|
Tax |
(0.9) |
3.9 |
5.7 |
1.4 |
0.3 |
(1.0) |
(2.7) |
(4.1) |
(4.4) |
(4.8) |
(5.0) |
|||
Profit After Tax (norm) |
7.7 |
(16.2) |
(17.9) |
3.1 |
7.4 |
11.4 |
17.0 |
19.5 |
20.6 |
22.5 |
23.2 |
|||
Profit After Tax (statutory) |
5.8 |
(19.4) |
(23.1) |
(2.6) |
0.1 |
8.6 |
15.3 |
18.0 |
20.1 |
22.0 |
22.7 |
|||
Average Number of Shares Outstanding (m) |
89.3 |
89.3 |
89.3 |
295.8 |
297.5 |
297.5 |
298.9 |
299.7 |
301.7 |
303.5 |
303.5 |
|||
EPS - norm (p) - Edison |
|
|
4.51 |
(9.42) |
(10.42) |
1.05 |
2.47 |
3.84 |
5.70 |
6.52 |
6.83 |
7.40 |
7.64 |
|
EPS - norm (p) |
|
|
4.21 |
(9.72) |
(9.45) |
0.88 |
2.31 |
3.67 |
5.53 |
6.35 |
6.66 |
7.24 |
7.47 |
|
EPS - statutory (p) |
|
|
3.41 |
(11.33) |
(13.49) |
(0.89) |
0.05 |
2.89 |
5.13 |
6.02 |
6.66 |
7.24 |
7.47 |
|
Dividend per share (p) |
5.0 |
1.5 |
0.8 |
0.0 |
0.5 |
1.5 |
2.3 |
4.3 |
2.8 |
3.0 |
3.3 |
|||
Gross Margin (%) |
7.8 |
-4.8 |
-4.0 |
5.8 |
7.4 |
8.3 |
9.9 |
10.7 |
10.8 |
11.4 |
11.5 |
|||
EBITDA Margin (%) |
7.3 |
-5.3 |
-4.3 |
5.2 |
6.7 |
7.9 |
9.8 |
10.6 |
10.8 |
11.5 |
11.7 |
|||
Op. Margin - Edison (%) |
5.6 |
-6.9 |
-5.8 |
3.6 |
4.9 |
6.4 |
8.4 |
9.2 |
9.3 |
9.9 |
9.9 |
|||
BALANCE SHEET |
||||||||||||||
Fixed Assets |
|
|
156.9 |
155.6 |
154.9 |
147.7 |
145.1 |
149.3 |
148.3 |
154.5 |
162.6 |
166.7 |
170.3 |
|
Intangible Assets |
72.9 |
70.4 |
69.8 |
64.6 |
61.8 |
59.2 |
56.3 |
54.8 |
54.7 |
54.7 |
54.7 |
|||
Tangible Assets |
79.6 |
76.2 |
76.1 |
74.1 |
76.6 |
77.4 |
78.9 |
81.2 |
83.8 |
86.2 |
88.0 |
|||
Investments |
4.4 |
8.9 |
8.9 |
9.0 |
6.7 |
12.7 |
13.1 |
18.5 |
24.1 |
25.8 |
27.5 |
|||
Current Assets |
|
|
100.5 |
69.8 |
80.5 |
72.2 |
76.3 |
75.1 |
107.1 |
99.2 |
101.2 |
114.0 |
127.1 |
|
Stocks |
9.1 |
7.1 |
8.2 |
5.8 |
4.8 |
5.3 |
7.8 |
9.6 |
10.8 |
11.0 |
11.2 |
|||
Debtors |
89.2 |
61.2 |
71.6 |
60.8 |
64.6 |
50.7 |
66.5 |
56.4 |
65.1 |
67.1 |
69.2 |
|||
Cash |
2.3 |
1.4 |
0.7 |
5.5 |
6.9 |
19.0 |
32.8 |
33.1 |
25.3 |
35.8 |
46.7 |
|||
Current Liabilities |
|
|
(103.6) |
(97.0) |
(112.5) |
(57.9) |
(59.7) |
(58.2) |
(78.7) |
(66.1) |
(66.4) |
(67.8) |
(69.1) |
|
Creditors |
(70.3) |
(66.1) |
(70.9) |
(52.7) |
(59.5) |
(58.1) |
(78.5) |
(65.9) |
(66.3) |
(67.7) |
(69.0) |
|||
Short term borrowings |
(33.3) |
(30.9) |
(41.7) |
(5.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.1) |
(0.1) |
(0.1) |
|||
Long Term Liabilities |
|
|
(21.6) |
(21.7) |
(20.4) |
(18.5) |
(21.1) |
(17.9) |
(22.5) |
(18.7) |
(18.1) |
(18.1) |
(18.1) |
|
Long term borrowings |
(0.3) |
(0.3) |
(0.2) |
(0.0) |
(0.6) |
(0.4) |
(0.2) |
(0.0) |
0.0 |
0.0 |
0.0 |
|||
Other long term liabilities |
(21.3) |
(21.4) |
(20.2) |
(18.5) |
(20.5) |
(17.5) |
(22.3) |
(18.6) |
(18.1) |
(18.1) |
(18.1) |
|||
Net Assets |
|
|
132.3 |
106.6 |
102.4 |
143.4 |
140.6 |
148.2 |
154.2 |
169.0 |
179.4 |
194.8 |
210.2 |
|
CASH FLOW |
||||||||||||||
Operating Cash Flow |
|
|
(5.4) |
12.9 |
3.1 |
2.1 |
11.4 |
24.8 |
27.4 |
22.9 |
20.0 |
31.1 |
32.5 |
|
Net Interest |
(2.0) |
(1.3) |
(1.7) |
(0.8) |
(0.8) |
(0.2) |
(0.1) |
(0.2) |
(0.1) |
(0.1) |
(0.1) |
|||
Tax |
(3.7) |
(2.7) |
(2.3) |
0.4 |
(1.0) |
(0.9) |
(2.4) |
(3.9) |
(4.6) |
(4.4) |
(4.8) |
|||
Capex |
(1.5) |
(0.2) |
(1.4) |
(1.5) |
(1.3) |
(4.3) |
(5.3) |
(5.4) |
(6.7) |
(7.0) |
(7.0) |
|||
Acquisitions/disposals |
(0) |
(2) |
(3.0) |
(3.5) |
(1.7) |
(4.1) |
(0.4) |
(5.5) |
(4.5) |
(0.5) |
(0.5) |
|||
Financing |
0 |
0 |
0.0 |
44.8 |
0 |
0 |
0 |
0 |
2 |
0 |
0 |
|||
Dividends |
(3.6) |
(4.5) |
(4.5) |
0.0 |
0.0 |
(3.0) |
(5.1) |
(7.5) |
(13.4) |
(8.6) |
(9.3) |
|||
Net Cash Flow |
(16.3) |
1.7 |
(9.7) |
41.5 |
6.7 |
12.4 |
14.0 |
0.4 |
(7.7) |
10.5 |
10.8 |
|||
Opening net debt/(cash) |
|
|
15.0 |
31.3 |
31.3 |
41.2 |
(0.3) |
(6.1) |
(18.4) |
(32.4) |
(32.9) |
(25.2) |
(35.7) |
|
HP finance leases |
0.0 |
0.1 |
0.0 |
(0.2) |
(0.3) |
(0.2) |
(0.2) |
(0.2) |
(0.1) |
0.0 |
0.0 |
|||
Other |
(0) |
(0) |
(0) |
0.2 |
(0.6) |
0.2 |
0 |
0 |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
|
|
31.3 |
29.7 |
41.2 |
(0.3) |
(6.1) |
(18.4) |
(32.4) |
(32.9) |
(25.2) |
(35.7) |
(46.5) |
|
Source: Company, Edison Investment Research
|
|
Research: Industrials
As anticipated at the H119 results, order intake for Cohort remained strong through the second half of the year. With the addition of Chess, the backlog at the year end should stand at more than £175m, comfortably a record for the group. It represents c 1.3 years of revenues based on our FY20 expectations and while many of the contracts are multi-year, it does provide increased sales cover for the medium term. Cohort continues to deliver against its growth strategy, appears to be largely insulated from Brexit concerns and still trades on an undemanding P/E multiple.