Structural steel supplier Severfield (LON: SFR) has a record order book worth £486m. There are inflationary pressures, but management expects the business continue to grow.
There are a range of customers. Stadia and leisure, transport and industrial and distribution are areas where the order book has grown over the past year. Nuclear is a potential growth sector and demand from office construction is recovering.
The business is being reorganised into three divisions: commercial and industrial, nuclear and infrastructure and products and processing, which includes the modular product range.
In the year to March 2022, revenues increased from £363.3m to £403.6m, while pre-tax profit improved £24.3m to £27.1m. The final dividend is increased from 1.8p a share to 1.9p a share, taking the total to the year to 3.1p a share.
Contracts normally include clauses that mean that steel price rises are passed on to the customer at zero margin, although that does affect the operating margin. Increased steel inventories to satisfy contracted demand were part of the reason that the group moved into debt with net borrowings of £18.4m at the end of March 2022. There is a £50m revolving credit facility that lasts until the end of 2026.
The joint venture in India returned to profit and the order book is also at a record high of £158m. A new site will be secured to build a new facility to expand capacity. That may require a cash injection to fund the purchase of the land.
Progressive Equity Research forecasts 2022-23 pre-tax profit of £31.2m on revenues of £460m. the share price rose 2.2p to 62.2p, which means that the prospective multiple is less than eight and the forecast yield is 5.3%.
