Severfield beats expectations and launches share buy back

Mark Watson-Mitchell was right to highlight the dealing levels in structural steel supplier Severfield (LON: SFR) shares (Severfield – take note of yesterday’s substantial trading in this steelwork group’s shares  – UK Investor Magazine). The subsequent trading statement was better than expected. The share price jumped 19.3% to 64.4p on the back of this news.

Liberum has increased its pre-tax profit estimate for the year just ended from £34.3m to £35.8m. That is down to better margins in the commercial and industrial division. The expected dividend has been raised from 3.6p/share to 3.9p/share. Severfield is gaining market share.

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Steel and energy prices have fallen back in the past year and 80% of energy costs are fixed for 2024-25. The UK and Europe order book has risen by 6%, but the Indian order book has declined by 15%. There is strong demand for battery plants, nuclear and data centres.  

The pre-tax profit forecast for the year to March 2025, has been trimmed from £37m to £36.6m because of a higher interest charge. That is even after lower than expected net debt of £10.2m at the end of March 2024, while the net debt forecast for March 2025 has been cut from £19.1m to £14.4m.

The rise in net debt is down to the plan to spend £10m on share buy backs, which will help to enhance earnings. The 2024-25 earnings forecast has been raised from 9.1p/share to 9.6p/share. However, Liberum has estimated the shares will be acquired at an average of 55p each. The share price rise means that the earnings may not be quite as high as forecast. The shares are trading on less than seven times prospective 2024-25 earnings and the forecast yield is 6.4%.  

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