Last close As at 05/08/2026
GBP0.37
▲ −0.30 (−0.80%)
Market capitalisation
GBP111m
Research: Industrials
Severfield
Written by
Severfield |
Set to outperform |
Dalton site visit |
Construction & materials |
3 May 2016 |
Share price performance
Business description
Next event
Analysts
Severfield is a research client of Edison Investment Research Limited |
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Severfield’s rising UK order book and improving margins set a good tone ahead of FY16 results on 15 June. A recent capital markets event served to reinforce the margin development path that the company is on, with further progress targeted. Little of this appears to be factored into the share price currently and we believe the scope for outperformance is now significant.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/14 |
231.3 |
4.5 |
1.1 |
0.0 |
47.8 |
N/A |
03/15 |
201.5 |
8.8 |
2.5 |
0.5 |
20.9 |
1.0 |
03/16e |
232.1 |
12.3 |
3.4 |
1.0 |
15.4 |
1.9 |
03/17e |
244.1 |
16.2 |
4.5 |
1.3 |
11.6 |
2.5 |
Note: *PBT and EPS are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.
Investing in sustainable margin improvement
Severfield’s FY16 EBIT margin target of 5-6% (FY13: around zero underlying) has been well flagged and is clearly now seen as a staging post for further progress. In markets that remain competitive, operational efficiency improvements have been emphasized. A site visit demonstrated a more co-ordinated facility management approach, with work packages being allocated to the most efficient fabrication site, balancing respective workflows and developing site flexibility. There has also been investment in fabrication (reducing plate process cycle time with multi-station CNC machinery), supply chain (metal decking JV) and ancillary areas (providing a fleet of site safety equipment, previously bought in). There is more to come; Severfield is upgrading its production flow management software (from a bespoke platform to a StruMIS industry ERP system) across all sites. This connects front-end modelling/ design, fabrication and site execution progress more effectively, links to commercial functions (eg purchasing, accounting) and enhances contract visibility at all levels.
Creating client value to enhance margins
Externally, Severfield provides combined structural and building programme design and value engineering expertise to add value to projects (ie increase efficiency, reduce risk, time and cost). This creates scope to differentiate during project development phases, drives tender success and provides opportunities to negotiate a share of any savings created. Earlier and full engagement with end-clients, main contractors and consultants offers potentially greater gains. Severfield’s industry reputation for advice, engineering and project delivery generates new business and Early Contractor Involvement (ECI) with repeat clients is actively being pursued.
Valuation: Rating compressed, earnings upside
Company newsflow has been positive in our view. This has not been reflected in share price performance and the rating has compressed year to date. The FY17e P/E is now 11.6x and EV/EBITDA 6.5x. Bearing in mind that continuing order book growth would be a trigger to raise estimates, this suggests even greater value. While there may be pipeline slippage caveats, we believe that Severfield’s balance of earnings risk is to the upside.
Exhibit 1: Financial summary
£m |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
2018e |
||
Year end 31 March |
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 |
|||
PROFIT & LOSS |
|||||||||||
Revenue |
|
|
266.7 |
267.8 |
256.6 |
318.3 |
231.3 |
201.5 |
232.1 |
244.1 |
256.1 |
Cost of Sales |
(242.6) |
(246.9) |
(268.8) |
(330.9) |
(217.8) |
(186.7) |
(213.6) |
(221.9) |
(230.0) |
||
Gross Profit |
24.1 |
20.9 |
(12.2) |
(12.7) |
13.5 |
14.9 |
18.5 |
22.3 |
26.1 |
||
EBITDA |
|
|
21.6 |
19.5 |
(13.6) |
(13.6) |
12.0 |
13.6 |
17.9 |
21.7 |
25.7 |
Operating Profit - Edison |
|
|
17.1 |
15.0 |
(17.7) |
(18.6) |
8.4 |
10.0 |
13.7 |
17.2 |
20.9 |
Net Interest |
(0.9) |
(1.6) |
(1.6) |
(2.0) |
(0.6) |
(0.5) |
(0.4) |
(0.3) |
(0.2) |
||
Associates |
(0.4) |
(2.5) |
0.2 |
(0.3) |
(3.0) |
(0.2) |
(0.2) |
0.0 |
0.0 |
||
SBP |
(0.0) |
(0.3) |
(0.0) |
(0.1) |
(0.2) |
(0.5) |
(0.8) |
(0.8) |
(0.8) |
||
Intangible Amortisation |
(2.7) |
(2.7) |
(2.7) |
(3.5) |
(2.7) |
(2.6) |
(2.6) |
(2.6) |
(1.6) |
||
Pension Net Finance Costs |
(0.5) |
(0.5) |
(0.5) |
(0.6) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
(0.5) |
||
Exceptionals |
(1.4) |
(0.6) |
(1.0) |
(3.8) |
(5.3) |
(5.9) |
(0.3) |
0.0 |
0.0 |
||
Profit Before Tax (norm) - Edison |
|
15.8 |
10.6 |
(19.1) |
(20.9) |
4.5 |
8.8 |
12.3 |
16.2 |
20.0 |
|
Profit Before Tax (norm) |
|
|
15.3 |
10.1 |
(19.6) |
(21.5) |
4.0 |
8.3 |
11.8 |
15.7 |
19.5 |
Profit Before Tax (FRS 3) |
|
|
11.1 |
6.8 |
(23.3) |
(28.9) |
(4.1) |
(0.2) |
8.9 |
13.1 |
17.9 |
Tax |
(3.5) |
(0.9) |
3.9 |
5.7 |
1.4 |
0.3 |
(1.8) |
(2.8) |
(3.4) |
||
Profit After Tax (norm) |
11.7 |
7.7 |
(16.2) |
(17.9) |
3.1 |
7.4 |
10.2 |
13.4 |
16.6 |
||
Profit After Tax (FRS 3) |
7.6 |
5.8 |
(19.4) |
(23.1) |
(2.6) |
0.1 |
7.1 |
10.3 |
14.5 |
||
Average Number of Shares Outstanding (m) |
89.0 |
89.3 |
89.3 |
89.3 |
295.8 |
297.5 |
297.5 |
297.5 |
297.5 |
||
EPS - normalised (p) - Edison |
|
|
6.82 |
4.51 |
(9.42) |
(10.42) |
1.05 |
2.47 |
3.42 |
4.52 |
5.57 |
EPS - normalised (p) |
|
|
6.51 |
4.21 |
(9.72) |
(9.45) |
0.88 |
2.31 |
3.25 |
4.35 |
5.40 |
EPS - FRS 3 (p) |
|
|
4.47 |
3.41 |
(11.33) |
(13.49) |
(0.89) |
0.05 |
2.38 |
3.47 |
4.87 |
Dividend per share (p) |
7.5 |
5.0 |
1.5 |
0.8 |
0.0 |
0.5 |
1.0 |
1.3 |
1.6 |
||
Gross Margin (%) |
9.0 |
7.8 |
-4.8 |
-4.0 |
5.8 |
7.4 |
8.0 |
9.1 |
10.2 |
||
EBITDA Margin (%) |
8.1 |
7.3 |
-5.3 |
-4.3 |
5.2 |
6.7 |
7.7 |
8.9 |
10.0 |
||
Operating Margin - Edison (%) |
6.4 |
5.6 |
-6.9 |
-5.8 |
3.6 |
4.9 |
5.9 |
7.1 |
8.2 |
||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
165.0 |
156.9 |
155.6 |
154.9 |
147.7 |
145.1 |
145.9 |
144.1 |
143.3 |
Intangible Assets |
75.2 |
72.9 |
70.4 |
69.8 |
64.6 |
61.8 |
59.0 |
56.3 |
54.7 |
||
Tangible Assets |
82.9 |
79.6 |
76.2 |
76.1 |
74.1 |
76.6 |
77.2 |
77.7 |
77.9 |
||
Investments |
6.9 |
4.4 |
8.9 |
8.9 |
9.0 |
6.7 |
9.7 |
10.2 |
10.7 |
||
Current Assets |
|
|
88.1 |
100.5 |
69.8 |
80.5 |
72.2 |
76.3 |
83.4 |
96.0 |
110.7 |
Stocks |
12.6 |
9.1 |
7.1 |
8.2 |
5.8 |
4.8 |
5.5 |
5.7 |
5.9 |
||
Debtors |
71.9 |
89.2 |
61.2 |
71.6 |
60.8 |
64.6 |
68.1 |
72.1 |
76.0 |
||
Cash |
3.6 |
2.3 |
1.4 |
0.7 |
5.5 |
6.9 |
9.8 |
18.3 |
28.8 |
||
Current Liabilities |
|
|
(99.8) |
(103.6) |
(97.0) |
(112.5) |
(57.9) |
(59.7) |
(62.6) |
(65.6) |
(68.2) |
Creditors |
(81.2) |
(70.3) |
(66.1) |
(70.9) |
(52.7) |
(59.5) |
(62.6) |
(65.6) |
(68.2) |
||
Short term borrowings |
(18.6) |
(33.3) |
(30.9) |
(41.7) |
(5.2) |
(0.2) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(22.3) |
(21.6) |
(21.7) |
(20.4) |
(18.5) |
(21.1) |
(18.3) |
(18.3) |
(18.3) |
Long term borrowings |
0.0 |
(0.3) |
(0.3) |
(0.2) |
(0.0) |
(0.6) |
(0.6) |
(0.6) |
(0.6) |
||
Other long term liabilities |
(22.3) |
(21.3) |
(21.4) |
(20.2) |
(18.5) |
(20.5) |
(17.8) |
(17.8) |
(17.8) |
||
Net Assets |
|
|
130.9 |
132.3 |
106.6 |
102.4 |
143.4 |
140.6 |
148.3 |
156.2 |
167.5 |
CASH FLOW |
|||||||||||
Operating Cash Flow |
|
|
(5.8) |
(5.4) |
12.9 |
3.1 |
2.1 |
11.4 |
16.1 |
19.2 |
23.0 |
Net Interest |
(0.8) |
(2.0) |
(1.3) |
(1.7) |
(0.8) |
(0.8) |
(0.4) |
(0.3) |
(0.2) |
||
Tax |
(5.4) |
(3.7) |
(2.7) |
(2.3) |
0.4 |
(1.0) |
(1.1) |
(1.8) |
(2.8) |
||
Capex |
(2.8) |
(1.5) |
(0.2) |
(1.4) |
(1.5) |
(1.3) |
(4.5) |
(5.0) |
(5.0) |
||
Acquisitions/disposals |
(2.9) |
(0) |
(2) |
(3.0) |
(3.5) |
(1.7) |
(4.0) |
(0.5) |
(0.5) |
||
Financing |
0 |
0 |
0 |
0.0 |
44.8 |
0 |
0 |
0 |
0 |
||
Dividends |
(8.9) |
(3.6) |
(4.5) |
(4.5) |
0.0 |
0.0 |
(3.0) |
(3.1) |
(4.0) |
||
Net Cash Flow |
(26.6) |
(16.3) |
1.7 |
(9.7) |
41.5 |
6.7 |
3.1 |
8.5 |
10.5 |
||
Opening net debt/(cash) |
|
|
(11.5) |
15.0 |
31.3 |
31.3 |
41.2 |
(0.3) |
(6.1) |
(9.2) |
(17.7) |
HP finance leases initiated |
0 |
0.0 |
0.1 |
0.0 |
(0.2) |
(0.3) |
(0.1) |
0.0 |
0.0 |
||
Other |
0 |
(0) |
(0) |
(0) |
0.2 |
(0.6) |
0.1 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
15.0 |
31.3 |
29.7 |
41.2 |
(0.3) |
(6.1) |
(9.2) |
(17.7) |
(28.2) |
Source: Company accounts, Edison Investment Research
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