Severfield beats expectations

Structural steel supplier Severfield (LON: SFR) did better than expected in the year to March 2024. The latest year has started well, but full year profit could be flat. Severfield is in a good position to take advantage of any upturn in the market.

In the year to March 2024, revenues fell 6% to £463.5m and underlying pre-tax profit improved from £32.5m to £36.5m. That is before an impairment charge of £4.54m on assets at a facility in Sherburn where the leasehold is ending and a provision for a claim from HMRC for historic national insurance payments of £4.41m. The latter is disputed by Severfield.

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There was a decline in UK revenues offset by doubled revenues elsewhere in Europe due to the acquisition of Voortman in the Netherlands. The halting of the Sunset Studio project hit the UK revenues and the lower steel price also reduced the group revenues.

Modular solutions returned to profit due to higher demand for Severstor equipment housings for critical electrical equipment and switchgear. That was after a lower profit contribution from the CMF joint venture.

A greater proportion of higher margin commercial work at the joint venture in India means that the Severfield share of profit improved from £1.3m to £1.9m. A site has been acquired for a new facility in Gujarat. There will be an incremental increase in capacity, and it will take the business into a new region.

The dividend has been raised for the tenth consecutive year. It is 9% higher at 3.7p/share. Net debt was £9.4m at the end of March 2024. Since then, £1m of the planned £10m has been spent on share buy backs.

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The UK and Europe order book is slightly lower at £478m, while the order book in India has risen from £165m to £181m.

This year, pre-tax profit is set to be flat, but earnings would rise because of share buy backs. At 70.5p, the shares are trading on less than eight times prospective earnings and the forecast yield is 5.7%.

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