A wide spread of sectors helped structural steel supplier Severfield (LON: SFR) improve its interim profit, even though some markets are getting tougher. Severfield has strong positions in its core markets and it has an opportunity to build on its business in Europe and India.
In the six months to September 2023, revenues were 8% lower at £215.3m, but underlying pre-tax profit improved 17% to £14.2m. This includes an unchanged contribution of £600,000 from the India joint venture, while the modular products business made a maiden profit. The interim dividend was raised 8% to 1.4p/share.
There was an underlying decrease in activity during the period, offset by the acquisition of Netherlands-based steel fabrication company Voortman Steel Construction Holding. Steel prices have fallen, and margins have improved.
Net cash fell to £400,000 at the end of September 2023, although that was after acquiring Voortman Steel Construction Holding for €24m. Advanced payments are worth £20m. However, the first half tends to be a better period of cash generation, so March 2024 net debt could be more than £25m as advanced payments unwind. The pension deficit is £11.2m.
The UK and Europe order book is worth £482m, even though the £50m contract for Hertfordshire-based film studio Sunset Studios has been delayed. The actors and writers strikes plus continuing losses for streaming companies, along with economic uncertainty, may have prompted the delay.
Distribution facilities were fuelling growth, but this area is weaker. Office building is starting to recover, while nuclear and datacentres provide growth prospects.
Another area that offers potential growth is renewables, in areas such as battery factories. There is plenty of business from this sector as long as the customers have the finance in place.
Margins improved in India, even though revenues declined. The facility in India will be expanded so that demand can be satisfied. The order book is worth £165m.
Liberum forecasts full year pre-tax profit rising from £32.5m to £34.3m. At 64.4p, the shares are trading on less than eight times prospective earnings and the yield is 5.5%.
This is being achieved under weak economic conditions and Severfield can do even better when the economy improves.
