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Research: Industrials
Site activity regaining pre-lockdown levels and a maintained UK/Europe order book were the key operational messages in Severfield’s AGM update. Market conditions mean that recovery within the Indian JV has been more constrained. The payment of an unchanged 1.8p final dividend for FY20 (as announced on 30 July) was approved and management stated that it is cautiously optimistic regarding the FY21 outlook. We plan to reinstate estimates with the H121 results expected in November.
Written by
Severfield |
Improved Q2 trading pattern continues |
AGM update |
Construction & materials |
4 September 2020 |
Share price performance
Business description
Next events
Analyst
Severfield is a research client of Edison Investment Research Limited |
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Site activity regaining pre-lockdown levels and a maintained UK/Europe order book were the key operational messages in Severfield’s AGM update. Market conditions mean that recovery within the Indian JV has been more constrained. The payment of an unchanged 1.8p final dividend for FY20 (as announced on 30 July) was approved and management stated that it is cautiously optimistic regarding the FY21 outlook. We plan to reinstate estimates with the H121 results expected in November.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS** |
P/E |
Yield** |
03/18** |
274.2 |
24.1 |
6.5 |
4.3 |
8.5 |
7.8 |
03/19 |
274.9 |
25.1 |
6.8 |
2.8 |
8.1 |
5.1 |
03/20 |
327.4 |
29.1 |
7.9 |
2.9 |
7.0 |
5.3 |
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.
UK operations busy and winning new business
Severfield’s AGM update noted that UK activity levels returned to pre-COVID-19 lockdown levels during Q2. Moreover, the UK and Europe order book is showing stability at £270m; this indicates that new business has been picked up during the period and it appears to have been more UK-centric – and spread rather than any single major win – though European orders on hand are still significant. Prospects for further new projects remain encouraging. The impacts on profitability of the initial lockdown, especially Q1 effects, are yet to be revealed. At the margin, sporadic price competition could temper project returns.
Tougher local conditions in India
The Indian JV has operated under more restrictive lockdown conditions than in the UK and is yet to return to pre-lockdown levels. The order book position has reduced from £110m (1 June) to £94m (1 September); in the absence of new business wins, this suggests a recent revenue run rate of £5m+/month – obviously higher if new wins have occurred – versus c £9m in FY20. Again, the financial impact is not clear yet but a larger sub-contract supply chain means that the JV retains flexible cost base options despite increasing capacity in the last financial year. More commercial work is identified in the pipeline and may feed into the order book in due course.
Cash-generative model
Severfield traditionally reports only end H1/FY financial positions and, hence, a net funds update was not provided with the AGM. An unchanged final dividend payment (c £5.5m) and expected Harry Peers deferred consideration (£6m+) will eat into the £16.4m net cash position at the end of FY20. That said, management remains confident in the company’s cash-generative model and repayment of RCF funds (drawn down as cover at the prior year end) during H1 indicates greater clarity and comfort in the cash flow outlook now compared to the initial phase of lockdown at the beginning of the financial year.
Exhibit 1: Financial summary
£m |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
231.3 |
201.5 |
239.4 |
262.2 |
274.2 |
274.9 |
327.4 |
Cost of Sales |
(217.8) |
(186.7) |
(219.6) |
(236.3) |
(244.9) |
(244.6) |
(292.6) |
||
Gross Profit |
13.5 |
14.9 |
19.8 |
25.9 |
29.3 |
30.3 |
34.7 |
||
EBITDA |
|
|
12.0 |
13.6 |
18.9 |
25.7 |
29.1 |
29.0 |
33.2 |
Operating Profit - Edison adjusted |
|
8.4 |
10.0 |
15.2 |
22.1 |
25.4 |
25.3 |
29.3 |
|
SBP |
(0.2) |
(0.5) |
(1.1) |
(2.0) |
(2.0) |
(1.6) |
(1.8) |
||
Pension Net Finance Costs |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.6) |
(0.4) |
(0.4) |
||
Operating Profit - company norm |
|
7.6 |
9.0 |
13.7 |
19.6 |
22.9 |
23.3 |
27.0 |
|
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 |
||
Intangible Amortisation |
(2.7) |
(2.6) |
(2.6) |
(2.6) |
(1.3) |
0.0 |
(1.4) |
||
Exceptionals |
(5.3) |
(5.9) |
(0.9) |
0.8 |
0.0 |
0.0 |
(1.4) |
||
Profit Before Tax (norm) - Edison |
|
4.5 |
8.8 |
13.7 |
20.3 |
24.1 |
25.1 |
29.1 |
|
Profit Before Tax (norm) |
|
|
4.0 |
8.3 |
13.2 |
19.8 |
23.5 |
24.7 |
28.6 |
Profit Before Tax (statutory) |
|
|
(4.1) |
(0.2) |
9.6 |
18.1 |
22.2 |
24.7 |
25.8 |
Tax |
1.4 |
0.3 |
(1.0) |
(2.7) |
(4.1) |
(4.5) |
(5.4) |
||
Profit After Tax (norm) |
3.1 |
7.4 |
11.4 |
17.0 |
19.6 |
20.6 |
24.1 |
||
Profit After Tax (statutory) |
(2.6) |
0.1 |
8.6 |
15.3 |
18.0 |
20.2 |
20.4 |
||
Average Number of Shares Outstanding (m) |
295.8 |
297.5 |
297.5 |
298.9 |
299.7 |
303.1 |
305.4 |
||
EPS - normalised (p) - Edison |
|
|
1.05 |
2.47 |
3.84 |
5.70 |
6.53 |
6.80 |
7.89 |
EPS - normalised (p) |
|
|
0.88 |
2.31 |
3.67 |
5.53 |
6.35 |
6.66 |
7.75 |
EPS - statutory (p) |
|
|
(0.89) |
0.05 |
2.89 |
5.13 |
6.02 |
6.66 |
6.68 |
Dividend per share (p) |
0.0 |
0.5 |
1.5 |
2.3 |
4.3 |
2.8 |
1.1 |
||
Gross Margin (%) |
5.8 |
7.4 |
8.3 |
9.9 |
10.7 |
11.0 |
10.6 |
||
EBITDA Margin (%) |
5.2 |
6.7 |
7.9 |
9.8 |
10.6 |
10.5 |
10.1 |
||
Operating Margin - Edison (%) |
3.6 |
4.9 |
6.4 |
8.4 |
9.3 |
9.2 |
8.9 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
147.7 |
145.1 |
149.3 |
148.3 |
154.5 |
163.0 |
203.8 |
Intangible Assets |
64.6 |
61.8 |
59.2 |
56.3 |
54.8 |
54.7 |
78.1 |
||
Tangible Assets |
74.1 |
76.6 |
77.4 |
78.9 |
81.2 |
84.0 |
99.0 |
||
Investments |
9.0 |
6.7 |
12.7 |
13.1 |
18.5 |
24.3 |
26.7 |
||
Current Assets |
|
|
72.2 |
76.3 |
75.1 |
107.1 |
99.2 |
91.8 |
127.4 |
Stocks |
5.8 |
4.8 |
5.3 |
7.8 |
9.6 |
8.9 |
6.9 |
||
Debtors |
60.8 |
64.6 |
50.7 |
66.5 |
56.4 |
57.7 |
76.1 |
||
Cash |
5.5 |
6.9 |
19.0 |
32.8 |
33.1 |
25.2 |
44.5 |
||
Current Liabilities |
|
|
(57.9) |
(59.7) |
(58.2) |
(78.7) |
(66.1) |
(58.6) |
(106.4) |
Creditors |
(52.7) |
(59.5) |
(58.1) |
(78.5) |
(65.9) |
(58.6) |
(87.0) |
||
Short term borrowings |
(5.2) |
(0.2) |
(0.2) |
(0.2) |
(0.2) |
(0.0) |
(19.4) |
||
Long Term Liabilities |
|
|
(18.5) |
(21.1) |
(17.9) |
(22.5) |
(18.7) |
(21.2) |
(41.2) |
Long term borrowings |
(0.0) |
(0.6) |
(0.4) |
(0.2) |
(0.0) |
0.0 |
(8.8) |
||
Other long term liabilities |
(18.5) |
(20.5) |
(17.5) |
(22.3) |
(18.6) |
(21.2) |
(32.4) |
||
Net Assets |
|
|
143.4 |
140.6 |
148.2 |
154.2 |
169.0 |
175.0 |
183.7 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
2.1 |
11.4 |
24.8 |
27.4 |
22.9 |
18.0 |
28.0 |
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) |
(6.0) |
||
Capex |
(1.5) |
(1.3) |
(4.3) |
(5.3) |
(5.4) |
(6.3) |
(6.2) |
||
Acquisitions/disposals |
(3.5) |
(1.7) |
(4.1) |
(0.4) |
(5.5) |
(4.2) |
(13.4) |
||
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) |
(7.0) |
||
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) |
(1.8) |
||
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) |
(16.4) |
IFRS 16 leases |
11.4 |
||||||||
Source: Company accounts, Edison Investment Research
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Research: Consumer
PPHE’s H120 results, more notably those from Q220, reflect the full impact of COVID-19 lockdowns on demand, and the substantial progress that management has made in managing the cost base and cash burn. Demand from the leisure sector has returned relatively strongly but the rate of potential recovery in business travel remains uncertain. In recent weeks, the group’s average occupancy level of c 35% is above the 30% required for operational break-even with government support for jobs and business rates, but below the c 40% required in the absence of government support.