• Mark Watson-Mitchell

Severfield – looking undervalued with its shares on a far too cautious rating

4th June 2021


In just nine market dealing days Severfield (LON:SFR) will be announcing its final results for the year to end March 2021.


In a year that saw the group battered by the impact of Covid-19 it actually traded rather well.


Better than expected


At the end of April the group declared a Trading Update for that year, indicating that its performance had been better than expected.


We shall see how it fared when its figures come out on Wednesday 16 June.


Steeling itself for business


As a structural steelwork company, it is engaged in the designing, manufacturing, fabrication, construction, and erection of steelwork activities in the UK, Ireland and Europe.


It manufactures metal decking products; composite metal flooring products; and steel and plated beams, steel sections, steelwork products, and intumescent coatings.


The company also provides stair and steelwork products; specialist design and engineering services; and tubular construction and plate girders, as well as delivers constructional steel products.


In addition, it offers design and build steelwork contracting services for distribution warehouses and low-rise structures.

Varied sector customers


The company provides its services for various projects, such as industrial and distribution, health and education, commercial offices, power and energy, stadia and leisure, retail, transport, and data centres and others, as well as infrastructure, including bridges.


From its six operating sites – Thirsk, Malton, Enniskillen, Bridlington and two in Bolton, it serves contractors, developers, engineers, and architects.


You know its work


I am fairly sure that we all have seen examples of its work on essential infrastructure such as airports, bridges and warehouses, right through to Olympic stadia and high-rise, mixed-use developments like The Shard.


The group also has a joint venture partnership with India’s largest steel producer, JSW Steel, which is said to be faring well despite India’s own virus hassles.


Resilient performance in 2020


Estimates for the last year suggest that the group’s revenues rose some £30m to £360m, while its pre-tax profits fell by about £5m to £24m. Earnings may have eased to 6.3p per share (7.7p) but still able to cover the maintained 2.9p dividend.


Current year going well


This year, it appears, has already got off to a good start, with its order book standing at a healthy £315m, which has crept up from the November 2020 level of £287m.


Going forward analysts are expecting a mall increase in sales revenues in the next two years at around £370m, while pre-tax profits could increase to £28m this year to end March 2022, then up to £31m in 2023, taking earnings up to 7.4p then 8.2p per share respectively.


Good professional holders


There are 308.2m shares in issue.


Larger holders include M&G Investment Management (10.99%), JO Hambro Capital Management (9.88%), Threadneedle Asset Management (7.57%), Legal & General Investment Management (5.46%), Invesco Asset Management (5.45%), Unicorn Asset Management (5.19%), Chelverton Asset Management (5.03%), Polar Capital (3.87%), Standard Life Investments (3.18%) and Rowan Dartington (Broker) (1.81%).


A long-term follower


I have been following this company for decades and consider it to be an important piece of the UK construction sector.


Its shares peaked at 306p way back in 2007 before the financial crisis hit business generally, a bit like Covid-19. They fell back to around the 73p level by 2009, then halved to 35p in 2013.


In the last year they have been as low as 51p before rising to the current 79p, at which level I reckon that they are ready to react to good news – could that be coming on 16 June.


My View


The results out in less than two weeks should make interesting reading.

In conclusion I am now fixing a new Target Price for the shares at 100p.


(Profile 12.09.19 @ 62p set a Target Price of 88p*)

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