Severfield — Reassurance and encouragement

Severfield (LSE: SFR)

Last close As at 12/07/2024

GBP0.81

2.00 (2.54%)

Market capitalisation

GBP249m

More on this equity

Research: Industrials

Severfield — Reassurance and encouragement

Severfield continues to trade in line with existing expectations though adverse sector sentiment has weighed on the company’s share price. There is a healthy and normal level of forward order cover and we believe that the project pipeline is likely to contain some good new project prospects. Overall, the AGM update provided reassurance for wary investors and, in our view, encouragement for potential new ones.

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Industrials

Severfield

Reassurance and encouragement

AGM update

Construction & materials

12 September 2017

Price

62.63p

Market cap

£188m

Net cash (£m) at end March 2017

32.4

Shares in issue

298.9m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.0)

(21.1)

11.8

Rel (local)

(14.1)

(20.1)

1.9

52-week high/low

88.0p

52.0p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility currently undertakes structural steelwork projects for the local market and is fully operational.

Next events

H118 results

21 November 2017

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

Severfield is a research client of Edison Investment Research Limited

Severfield continues to trade in line with existing expectations though adverse sector sentiment has weighed on the company’s share price. There is a healthy and normal level of forward order cover and we believe that the project pipeline is likely to contain some good new project prospects. Overall, the AGM update provided reassurance for wary investors and, in our view, encouragement for potential new ones.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

239.4

13.7

3.8

1.5

16.5

2.4

03/17

262.2

20.3

5.7

2.3

11.0

3.7

03/18e

263.2

22.2

6.3

2.5

9.9

4.0

03/19e

267.8

24.4

6.9

2.8

9.1

4.5

Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.

Positive order book interpretations

Severfield’s AGM update noted the likelihood of a greater H1 – and implicitly more even full year – weighting to FY18 results compared to the prior year (FY17 EBIT H1:H2, 42:58). We assume that this reflects the pattern of projects at or nearing completion and is consistent with higher activity levels seen last year. The UK order book value is slightly below the last reported level at £221m. (This provides forward cover for all four UK fabrication facilities, naturally longer for some reflecting underlying project characteristics.) As well as the cycle through of orders this could be interpreted as a signal of slowing markets and/or more protracted tender processes. On the other hand, it could also signify a reaffirmation of Severfield’s ongoing project selectivity, possibly with a view to securing visible pipeline opportunities in the context of available capacity. The company’s bid conversion rate is understood to have been very consistent and stable in the year to date. We believe that the pipeline of larger UK project prospects is significant and spread across a number of segments addressed. These include London commercial and retail and, on a slightly longer view, infrastructure and stadia. The UK order book could well gap up again over the next 12-18 months (as seen in H116 and H117) in our view. The Indian JV order book at £64m is lower than last reported but against historical levels (in the £30-40m range) and local fabrication capacity this still represents a healthy level. Recent equity injections by both JV partners (to re-finance debt) indicated confidence in future prospects and this is unchanged.

Valuation: Rating compression, decent yield

After reaching an intra-year high of 88p in April, Severfield’s share price has trended lower and is now down c 15% ytd, while the FTSE All Share Index is up c 4%. Our PBT, EPS and especially DPS estimates have increased over this time period in all forecast years, although are unchanged for the AGM update. Consequently, current year P/E and EV/EBITDA multiples have compressed to 9.9x and 5.6x, respectively, and decline further by FY20. A prospective yield of 4% further enhances potential shareholder returns.

Exhibit 1: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

12m to Dec

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

PROFIT & LOSS

Revenue

 

 

266.7

267.8

256.6

318.3

231.3

201.5

239.4

262.2

263.2

267.8

274.1

Cost of Sales

(242.6)

(246.9)

(268.8)

(330.9)

(217.8)

(186.7)

(219.6)

(236.3)

(235.7)

(238.0)

(242.2)

Gross Profit

24.1

20.9

(12.2)

(12.7)

13.5

14.9

19.8

25.9

27.5

29.7

32.0

EBITDA

 

 

21.6

19.5

(13.6)

(13.6)

12.0

13.6

18.9

25.7

27.3

29.6

31.9

Operating Profit - Edison

 

 

17.1

15.0

(17.7)

(18.6)

8.4

10.0

15.2

22.1

23.5

25.5

27.6

Net Interest

(0.9)

(1.6)

(1.6)

(2.0)

(0.6)

(0.5)

(0.2)

(0.2)

(0.1)

0.0

0.1

Associates

(0.4)

(2.5)

0.2

(0.3)

(3.0)

(0.2)

(0.2)

0.5

0.8

0.9

1.0

SBP

(0.0)

(0.3)

(0.0)

(0.1)

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(2.0)

(2.0)

Intangible Amortisation

(2.7)

(2.7)

(2.7)

(3.5)

(2.7)

(2.6)

(2.6)

(2.6)

(1.6)

0.0

0.0

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Exceptionals

(1.4)

(0.6)

(1.0)

(3.8)

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

0.0

Profit Before Tax (norm) - Edison

 

15.8

10.6

(19.1)

(20.9)

4.5

8.8

13.7

20.3

22.2

24.4

26.6

Profit Before Tax (norm)

 

 

15.3

10.1

(19.6)

(21.5)

4.0

8.3

13.2

19.8

21.7

23.9

26.1

Profit Before Tax (FRS 3)

 

 

11.1

6.8

(23.3)

(28.9)

(4.1)

(0.2)

9.6

18.1

20.2

23.9

26.1

Tax

(3.5)

(0.9)

3.9

5.7

1.4

0.3

(1.0)

(2.7)

(3.6)

(3.9)

(4.3)

Profit After Tax (norm)

11.7

7.7

(16.2)

(17.9)

3.1

7.4

11.4

17.0

18.7

20.5

22.4

Profit After Tax (FRS 3)

7.6

5.8

(19.4)

(23.1)

(2.6)

0.1

8.6

15.3

16.6

20.0

21.9

Average Number of Shares Outstanding (m)

89.0

89.3

89.3

89.3

295.8

297.5

297.5

298.9

298.5

298.5

298.5

EPS - normalised (p) - Edison

 

 

6.82

4.51

(9.42)

(10.42)

1.05

2.47

3.84

5.70

6.26

6.87

7.49

EPS - normalised (p)

 

 

6.51

4.21

(9.72)

(9.45)

0.88

2.31

3.67

5.53

6.09

6.70

7.32

EPS - FRS 3 (p)

 

 

4.47

3.41

(11.33)

(13.49)

(0.89)

0.05

2.89

5.13

5.56

6.70

7.32

Dividend per share (p)

7.5

5.0

1.5

0.8

0.0

0.5

1.5

2.3

2.5

2.8

3.0

Gross Margin (%)

9.0

7.8

-4.8

-4.0

5.8

7.4

8.3

9.9

10.4

11.1

11.7

EBITDA Margin (%)

8.1

7.3

-5.3

-4.3

5.2

6.7

7.9

9.8

10.4

11.1

11.6

Operating Margin - Edison (%)

6.4

5.6

-6.9

-5.8

3.6

4.9

6.4

8.4

8.9

9.5

10.1

BALANCE SHEET

Fixed Assets

 

 

165.0

156.9

155.6

154.9

147.7

145.1

149.3

148.3

154.5

156.8

159.0

Intangible Assets

75.2

72.9

70.4

69.8

64.6

61.8

59.2

56.3

54.7

54.7

54.7

Tangible Assets

82.9

79.6

76.2

76.1

74.1

76.6

77.4

78.9

80.6

81.5

82.2

Investments

6.9

4.4

8.9

8.9

9.0

6.7

12.7

13.1

19.2

20.6

22.1

Current Assets

 

 

88.1

100.5

69.8

80.5

72.2

76.3

75.1

107.1

109.6

122.6

137.1

Stocks

12.6

9.1

7.1

8.2

5.8

4.8

5.3

7.8

7.7

7.8

7.9

Debtors

71.9

89.2

61.2

71.6

60.8

64.6

50.7

66.5

67.5

69.2

71.3

Cash

3.6

2.3

1.4

0.7

5.5

6.9

19.0

32.8

34.4

45.6

57.8

Current Liabilities

 

 

(99.8)

(103.6)

(97.0)

(112.5)

(57.9)

(59.7)

(58.2)

(78.7)

(75.6)

(76.5)

(77.8)

Creditors

(81.2)

(70.3)

(66.1)

(70.9)

(52.7)

(59.5)

(58.1)

(78.5)

(75.4)

(76.4)

(77.6)

Short term borrowings

(18.6)

(33.3)

(30.9)

(41.7)

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.2)

Long Term Liabilities

 

 

(22.3)

(21.6)

(21.7)

(20.4)

(18.5)

(21.1)

(17.9)

(22.5)

(22.5)

(22.5)

(22.5)

Long term borrowings

0.0

(0.3)

(0.3)

(0.2)

(0.0)

(0.6)

(0.4)

(0.2)

(0.2)

(0.2)

(0.2)

Other long term liabilities

(22.3)

(21.3)

(21.4)

(20.2)

(18.5)

(20.5)

(17.5)

(22.3)

(22.3)

(22.3)

(22.3)

Net Assets

 

 

130.9

132.3

106.6

102.4

143.4

140.6

148.2

154.2

166.0

180.4

195.8

CASH FLOW

Operating Cash Flow

 

 

(5.8)

(5.4)

12.9

3.1

2.1

11.4

24.8

27.4

22.0

27.9

30.0

Net Interest

(0.8)

(2.0)

(1.3)

(1.7)

(0.8)

(0.8)

(0.2)

(0.1)

(0.1)

0.0

0.1

Tax

(5.4)

(3.7)

(2.7)

(2.3)

0.4

(1.0)

(0.9)

(2.4)

(2.9)

(3.6)

(3.9)

Capex

(2.8)

(1.5)

(0.2)

(1.4)

(1.5)

(1.3)

(4.3)

(5.3)

(5.5)

(5.0)

(5.0)

Acquisitions/disposals

(2.9)

(0)

(2)

(3.0)

(3.5)

(1.7)

(4.1)

(0.4)

(5.3)

(0.5)

(0.5)

Financing

0

0

0

0.0

44.8

0

0

0

0

0

0

Dividends

(8.9)

(3.6)

(4.5)

(4.5)

0.0

0.0

(3.0)

(5.1)

(6.7)

(7.7)

(8.4)

Net Cash Flow

(26.6)

(16.3)

1.7

(9.7)

41.5

6.7

12.4

14.0

1.6

11.2

12.2

Opening net debt/(cash)

 

 

(11.5)

15.0

31.3

31.3

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(34.0)

(45.2)

HP finance leases initiated

0

0.0

0.1

0.0

(0.2)

(0.3)

(0.2)

(0.2)

0.0

0.0

0.0

Other

0

(0)

(0)

(0)

0.2

(0.6)

0.2

0

0

0

(0)

Closing net debt/(cash)

 

 

15.0

31.3

29.7

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(34.0)

(45.2)

(57.4)

Source: Severfield accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Severfield and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

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Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Healthcare

Novogen — GDC-0084 Phase II on track to commence Q417

Novogen is on track to commence a Phase II trial of GDC-0084 in glioblastoma in Q4 CY17, in line with previous guidance. It plans to meet with the FDA to discuss trial design as it finalises preparations for the study. A Phase I trial of Cantrixil in ovarian cancer is well underway, with initial data expected in late 2017 or early 2018 – efficacy data from an expansion cohort at the MTD are likely in H2 CY18. We lift our valuation range slightly to between A$87m and A$152m (A$0.18-0.31 per share), while noting that additional funds may be needed in FY18.

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