Severfield — Multiple positives should excite investors

Severfield (LSE: SFR)

Last close As at 22/05/2024

GBP0.71

−1.60 (−2.19%)

Market capitalisation

GBP219m

More on this equity

Research: Industrials

Severfield — Multiple positives should excite investors

Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appears compelling.

Andy Murphy

Written by

Andy Murphy

Director, Financials & Industrials

Industrials

Severfield

Multiple positives should excite investors

FY23 trading update

Construction and materials

17 April 2024

Price

54p

Market cap

£167m

Estimated net debt at 30 March 2024

£10.0m

Shares in issue

309.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

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.

Analyst

Andy Murphy

+44 (0)20 3077 5700

Severfield is a research client of Edison Investment Research Limited

Severfield’s trading update indicates that FY23 results are expected to slightly exceed market expectations and the company ends the year with a record UK and Europe order book. Furthermore, with a positive trading outlook and net debt coming in lower than expected, Severfield has announced a £10m share buyback, highlighting the cash-generative nature of the company and management’s confidence in its position. The stock trades on an FY25 P/E of less than 6x and yields 7%, which we believe appears compelling.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/22

403.6

37.1

7.2

3.1

7.5

5.7

03/23

491.8

32.5

8.4

3.4

6.4

6.3

03/24e

482.9

35.2

8.7

3.6

6.2

6.7

03/25e

550.5

37.5

9.3

3.8

5.8

7.0

Note: *PBT and EPS are underlying, diluted, company basis, excluding amortisation of acquired intangibles, and exceptional items.

Severfield secured significant new work in H223 and ended the fiscal year with a UK and Europe order book at £511m, a record level, up from £482m on 1 November, with £397m due to be delivered in the current financial year. The order book was supported in Europe via the Voortman acquisition, and continental Europe and Ireland now account for 32% of the total, up from 13% on 1 November. Demand for data centres in particular has been strong.

Demand opportunities exist across both the Commercial and Industrial, and the Nuclear and Infrastructure divisions in the UK, continental Europe and Ireland from a range of sectors, including the broad low-carbon economy, which includes battery plants, manufacturing facilities for renewable energy and offshore wind projects, as well as nuclear reactors, carbon capture initiatives and rail projects.

Severfield’s Modular Solutions division has continued to grow the higher-margin Severstor product ranges with a focus on renewable energy and data storage. Revenues and the client base are growing and the division is now expected to report a small profit in FY24.

JSSL, the JV in India, performed well in H2 in particular and is expected to deliver good profit growth, having exceeded 100,000 tonnes of output for the second year running. The order book declined from £165m in November to £142m on 1 April, but with an improving pipeline of orders and numerous growth opportunities in existing and new sectors, the outlook is encouraging, which will be supported by capacity expansion on adjacent land.

Management believes that the business is performing well and is positioned in markets with ‘excellent’ long-term opportunities in which it is seeing improving trends despite uncertainty in the wider economy. With this in mind and the net debt coming in at c £10m, lower than the company’s expectations, due to a permanent working capital improvement, Severfield has announced a share buyback of a similar size. This is not expected to restrict potential M&A activity.

Separately, the company has appointed Charlie Cornish as the new non-executive chair, taking over from Kevin Whiteman after the 30 July AGM.

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London │ New York │ Frankfurt

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London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by <Company name> and prepared and issued by Edison, in consideration of a fee payable by <Company name>. 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 2024 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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