Severfield — Update 17 February 2016

Severfield (LSE: SFR)

Last close As at 19/07/2024

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−1.00 (−1.20%)

Market capitalisation

GBP252m

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Research: Industrials

Severfield — Update 17 February 2016

Severfield

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Industrials

Severfield

Significant increase in UK order book

Trading update

Construction & materials

18 February 2016

Price

58.75p

Market cap

£175m

Net cash (£m) at end September 2015

12.9

Shares in issue

297.5m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

(7.5)

(14.9)

Rel (local)

(7.6)

(3.5)

(4.3)

52-week high/low

73.2p

57.0p

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

FY16 year end

March 2016

FY16 results

June 2016

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

An in-line trading update states that Severfield’s UK and Indian JV operations and the group overall are performing as outlined in the H116 results. Both regions have seen improved order book positions, with a 33% increase in the UK since the beginning of November particularly noteworthy. While some cautionary industry comments were reiterated, we consider that the UK order position is a strongly positive development.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/14

231.3

4.5

1.1

0.0

53.4

N/A

03/15

201.5

8.8

2.5

0.5

23.5

0.9

03/16e

232.1

12.3

3.4

1.0

17.3

1.7

03/17e

244.1

16.2

4.5

1.3

13.1

2.2

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

Building UK forward order visibility

Successful execution of projects on hand and continuing progression of operating margins into the 5-6% range for FY16 are key near-term targets and Severfield appears to be on track here. We have consistently flagged order book development as a lead indicator for progress beyond this. Consequently, we see the move from £185m to £246m (between 1 November and 15 February) as significant and believe that this is the highest reported UK order book since August 2011. There appears to have been a lengthening of order visibility rather than a material increase in short-term activity levels, but this bodes well for capacity utilisation and operating efficiencies in due course. In the absence of project-specific detail, we would expect the key drivers of the increase to have been the conversion of some larger projects in previously indicated prospects across a mix of sectors. This said, management has reiterated previous caution regarding scope for timescale slippages, which we believe is likely to relate to the rate of new contract awards in the industry rather than specific Severfield projects on hand.

Stability in Indian JV

There has been no discernible change to business conditions for the Indian JV in the last three months, but steady production levels and an order book increase (up from £35m to £39m) are both welcome updates. As things stand, this is likely to be insufficient to allow the JV to move clearly into positive PBT territory from current levels (which we estimate to be at or around break-even after interest costs). However, the gradual process of increasing the penetration of structural steelwork in construction projects in the local market is ongoing.

Valuation: Earnings recovering, rating falling

In valuation terms, Severfield is trading on a current year P/E of 17.3x, EV/EBITDA 9.1x and prospective dividend yield of 1.7%. For FY17, these metrics fall to 13.1x, 7.1x and 2.2% respectively. While there is cautious UK economic commentary currently, sustained order book activity at the current levels suggests a rising rate of revenue growth for Severfield, above the levels that we have presently factored in.

Exhibit 1: Financial summary

£m

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

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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Germany

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United Kingdom

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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