Severfield — Strong H2 performance and order book growth

Severfield (LSE: SFR)

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Last close As at 06/12/2023

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Research: Industrials

Severfield — Strong H2 performance and order book growth

Severfield has overcome supply chain strains to deliver H2-weighted profitability in line with management’s expectations. Input cost inflation pass-through and order visibility cause us to raise our revenue expectations, leaving PBT and EPS estimates unchanged at this stage. Outlook confidence from orders on hand and pipeline comments is only latterly being reflected in share price performance.

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Industrials

Severfield

Strong H2 performance and order book growth

FY22 year-end update

Construction & materials

28 April 2022

Price

72p

Market cap

£223m

Core net debt (£m) at end March 2022

19

Shares in issue

309.3m

Free float

100%

Code

SFR

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.8

(5.6)

(16.2)

Rel (local)

3.8

(3.1)

(19.3)

52-week high/low

82.6p

62.0p

Business description

Severfield is a leading UK structural steelwork fabricator operating across a broad range of market sectors. An Indian facility undertakes structural steelwork projects for the local market and was expanded in FY20.

Next events

FY22 results announcement

15 June

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Severfield is a research client of Edison Investment Research Limited

Severfield has overcome supply chain strains to deliver H2-weighted profitability in line with management’s expectations. Input cost inflation pass-through and order visibility cause us to raise our revenue expectations, leaving PBT and EPS estimates unchanged at this stage. Outlook confidence from orders on hand and pipeline comments is only latterly being reflected in share price performance.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/20

327.4

29.1

7.9

2.9

9.1

4.0

03/21

363.3

24.8

6.6

2.9

11.0

4.0

03/22e

396.2

28.3

7.5

3.1

9.6

4.3

03/23e

422.3

31.8

8.4

3.3

8.5

4.6

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

Delivering profitability and record order books

Severfield’s in-line year-end update infers that it has generated two-thirds of our estimated UK EBIT in H2, successfully delivering orders won in the previous 18 months or so. Notwithstanding input cost inflation, absolute levels of profitability seem to have remained robust, indicating that Severfield’s through-project risk management approach (from tendering through to final accounts) has been effective. The pass-through impact of higher input prices will have boosted both revenue and order book development (now £479m for UK/Ireland from £393m in November) to some extent, but the underlying order intake has clearly been healthy. Severfield’s Indian JV (JSSL) has also hit management expectations, including further profitable trading in H2 and a year-end order book reaching £166m (£140m in November). This now has a mix more weighted towards industrial projects (60%: commercial 40%), underpinned by projects for Severfield’s JV partner JSW. Year-end group net debt (pre IFRS 16) of £19m is somewhat higher than the £8m we had anticipated, which reflects inflationary impacts on receivables, busy activity levels at the year end and some investment in steel inventory, we believe.

Revenue expectations boosted, EBIT unchanged

Inflationary effects, the strong UK/Ireland order position (including £382m for FY23 delivery) and active tendering activity levels cause us to raise our revenue expectations by c 6% for FY22 and by over 10% for the following two years, leaving EBIT estimates unchanged at this stage. We will revisit margin development when the FY22 results are announced in June.

Valuation: Take confidence from order position

The year-end update has been well-received by the market and Severfield’s share price is now back above its levels at the start of 2022, after a period of softness. On unchanged EPS estimates, an FY23 P/E of 8.5x and EV/EBITDA of 6.2x look too conservative to us, given visibility from orders on hand and a tender pipeline that is said to be encouraging.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

 

 

 

 

 

PROFIT & LOSS

Revenue

 

 

231.3

201.5

239.4

262.2

274.2

274.9

327.4

363.3

396.2

422.3

429.5

Cost of Sales

(217.8)

(186.7)

(219.6)

(236.3)

(244.9)

(244.6)

(292.2)

(329.4)

(359.4)

(381.9)

(387.5)

Gross Profit

13.5

14.9

19.8

25.9

29.3

30.3

35.1

33.9

36.8

40.4

42.0

EBITDA

 

 

12.0

13.6

18.9

25.7

29.1

29.0

33.2

30.9

35.2

38.8

40.3

Operating Profit - Edison adjusted

 

 

8.4

10.0

15.2

22.1

25.4

25.3

29.3

26.5

30.1

33.4

34.7

SBP

(0.2)

(0.5)

(1.1)

(2.0)

(2.0)

(1.6)

(1.8)

(0.6)

(1.5)

(1.5)

(1.5)

Pension Net Finance Costs

(0.5)

(0.5)

(0.5)

(0.5)

(0.6)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

(0.4)

Operating Profit - company norm

 

 

7.6

9.0

13.7

19.6

22.9

23.3

27.0

25.5

28.2

31.4

32.7

Net Interest

(0.6)

(0.5)

(0.2)

(0.2)

(0.2)

(0.2)

(0.7)

(0.8)

(1.2)

(1.1)

(0.9)

Associates

(3.0)

(0.2)

(0.2)

0.5

0.9

1.7

2.4

(0.3)

0.9

1.0

1.7

Intangible Amortisation

(2.7)

(2.6)

(2.6)

(2.6)

(1.3)

0.0

(1.4)

(2.8)

(4.1)

(4.1)

(1.5)

Exceptionals

(5.3)

(5.9)

(0.9)

0.8

0.0

0.0

(1.4)

(0.4)

(0.3)

0.0

0.0

Profit Before Tax (norm) - Edison

 

 

4.5

8.8

13.7

20.3

24.1

25.1

29.1

24.8

28.3

31.8

34.0

Profit Before Tax (norm)

 

 

4.0

8.3

13.2

19.8

23.5

24.7

28.6

24.3

27.8

31.3

33.6

Profit Before Tax (statutory)

 

 

(4.1)

(0.2)

9.6

18.1

22.2

24.7

25.8

21.1

23.5

27.3

32.0

Tax

1.4

0.3

(1.0)

(2.7)

(4.1)

(4.5)

(5.4)

(3.8)

(5.1)

(5.7)

(6.0)

Profit After Tax (norm)

3.1

7.4

11.4

17.0

19.6

20.6

24.1

20.2

23.2

26.1

28.0

Profit After Tax (statutory)

(2.6)

0.1

8.6

15.3

18.0

20.2

20.4

17.3

18.4

21.6

26.0

Average Number of Shares Outstanding (m)

295.8

297.5

297.5

298.9

299.7

303.1

305.4

307.3

308.6

309.3

309.3

EPS - normalised (p) - Edison

 

 

1.05

2.47

3.84

5.70

6.53

6.80

7.89

6.57

7.52

8.43

9.06

EPS - normalised (p)

 

 

0.88

2.31

3.67

5.53

6.35

6.66

7.75

6.43

7.38

8.29

8.92

EPS - statutory (p)

 

 

(0.89)

0.05

2.89

5.13

6.02

6.66

6.68

5.63

5.96

6.98

8.42

Dividend per share (p)

0.0

0.5

1.5

2.3

4.3

2.8

2.9

2.9

3.1

3.3

3.6

Gross Margin (%)

5.8

7.4

8.3

9.9

10.7

11.0

10.7

9.3

9.3

9.6

9.8

EBITDA Margin (%)

5.2

6.7

7.9

9.8

10.6

10.5

10.1

8.5

8.9

9.2

9.4

Operating Margin - Edison (%)

3.6

4.9

6.4

8.4

9.3

9.2

8.9

7.3

7.6

7.9

8.1

BALANCE SHEET

Fixed Assets

 

 

147.7

145.1

149.3

148.3

154.5

163.0

203.8

230.1

228.5

227.1

230.2

Intangible Assets

64.6

61.8

59.2

56.3

54.8

54.7

78.1

95.4

91.0

86.9

85.4

Tangible Assets

74.1

76.6

77.4

78.9

81.2

84.0

99.0

101.5

106.4

109.0

111.4

Investments

9.0

6.7

12.7

13.1

18.5

24.3

26.7

33.2

31.1

31.2

33.4

Current Assets

 

 

72.2

76.3

75.1

107.1

99.2

91.8

127.4

107.7

119.1

124.2

127.4

Stocks

5.8

4.8

5.3

7.8

9.6

8.9

6.9

10.2

16.2

17.2

18.4

Debtors

60.8

64.6

50.7

66.5

56.4

57.7

76.1

72.4

94.7

104.9

108.5

Cash

5.5

6.9

19.0

32.8

33.1

25.2

44.5

25.1

8.2

2.2

0.4

Current Liabilities

 

 

(57.9)

(59.7)

(58.2)

(78.7)

(66.1)

(58.6)

(106.4)

(85.4)

(97.7)

(93.6)

(90.5)

Creditors

(52.7)

(59.5)

(58.1)

(78.5)

(65.9)

(58.6)

(87.0)

(79.5)

(79.7)

(77.5)

(79.5)

Short term borrowings

(5.2)

(0.2)

(0.2)

(0.2)

(0.2)

(0.0)

(19.4)

(5.9)

(17.9)

(16.1)

(11.0)

Long Term Liabilities

 

 

(18.5)

(21.1)

(17.9)

(22.5)

(18.7)

(21.2)

(41.2)

(50.8)

(43.9)

(39.7)

(37.3)

Long term borrowings

(0.0)

(0.6)

(0.4)

(0.2)

(0.0)

0.0

(8.8)

(14.9)

(9.0)

(4.8)

(2.4)

Other long term liabilities

(18.5)

(20.5)

(17.5)

(22.3)

(18.6)

(21.2)

(32.4)

(35.9)

(34.9)

(34.9)

(34.9)

Net Assets

 

 

143.4

140.6

148.2

154.2

169.0

175.0

183.7

201.6

206.0

218.0

229.7

CASH FLOW

Operating Cash Flow

 

 

2.1

11.4

24.8

27.4

22.9

18.0

28.0

30.0

6.5

33.4

37.6

Net Interest

(0.8)

(0.8)

(0.2)

(0.1)

(0.2)

(0.4)

(0.6)

(0.7)

(1.1)

(1.1)

(0.9)

Tax

0.4

(1.0)

(0.9)

(2.4)

(3.9)

(3.4)

(6.0)

(4.6)

(6.8)

(5.1)

(5.7)

Capex

(1.5)

(1.3)

(4.3)

(5.3)

(5.4)

(6.3)

(6.2)

(6.5)

(9.9)

(8.0)

(8.0)

Acquisitions/disposals

(3.5)

(1.7)

(4.1)

(0.4)

(5.5)

(4.2)

(13.4)

(19.9)

(0.5)

(7.1)

(4.5)

Financing

44.8

0

0

0

0

1.7

0

0

1

0

0

Dividends

0.0

0.0

(3.0)

(5.1)

(7.5)

(13.4)

(8.9)

(8.9)

(9.3)

(9.6)

(10.4)

Net Cash Flow

41.5

6.7

12.4

14.0

0.4

(8.0)

(7.0)

(10.3)

(20.6)

2.5

8.1

Opening net debt/(cash)

 

 

41.2

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(16.4)

(4.4)

18.7

18.7

Finance lease - cash

(0.2)

(0.3)

(0.2)

(0.2)

(0.2)

(0.2)

(1.8)

(1.7)

(2.4)

(2.4)

(2.4)

Other

0.2

(0.6)

0.2

0

0.2

0

0

(0)

(0)

(0)

0

Closing net debt/(cash)

 

 

(0.3)

(6.1)

(18.4)

(32.4)

(32.9)

(25.2)

(16.4)

(4.4)

18.7

18.7

13.0

IFRS 16 leases

11.4

11.1

10.9

10.9

10.9

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. 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 2022 Edison Investment Research Limited (Edison).

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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.

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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.

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This report has been commissioned by Severfield and prepared and issued by Edison, in consideration of a fee payable by Severfield. 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 2022 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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: TMT

Checkit — Growth strategy on track

Checkit made good progress during FY22 with its strategy to transition to a pure SaaS business. Annualised recurring revenue (ARR) grew 44%
y-o-y, helped by new customer wins and expansion of existing contracts, with recurring revenue reaching 75% of total revenue in Q422 compared to 51% for the full year. Management expects to meet market expectations for FY23; our FY23 forecasts are substantially unchanged and we introduce FY24 forecasts that factor in ARR growth of 32%.

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