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Market capitalisation
GBP111m
Research: Industrials
Severfield
Written by
Severfield |
Significant increase in UK order book |
Trading update |
Construction & materials |
18 February 2016 |
Share price performance
Business description
Next events
Analysts
Severfield is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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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