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  • Writer's pictureMark Watson-Mitchell

Small Cap Catch-Up: Severfield, Gateley and Halfords

Severfield (LON:SFR) – Positive Outlook And Well-Positioned

This group is the UK’s market leader in the design, fabrication and construction of structural steel, with a total capacity of c.150,000 tonnes of steel per annum.

It has seven sites, with around 1,800 employees and experience in large, complex projects across a broad range of sectors.

Importantly, it also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel, which is India’s largest steel producer.

At this Wednesday’s AGM the group issued a Trading Update, which was really quite bullish.

The outlook for the group remains positive and its businesses are well-positioned in markets with excellent long-term growth opportunities.

Whilst current trading conditions are more challenging, given the group’s historical performance, diversified activities and the strength of its order books, its Management continues to expect to deliver further progress and a result for 2024 which is in line with expectations.

The company has almost unrivalled expertise in large, complex projects for a wide range of business sectors.

As a group it can manage every aspect of the fabrication and construction process, from initial scheme designs through to specification and then manufacture and up to the eventual product handover.

It has clients involved in schemes in the following sectors: power and energy; industrial and distribution; commercial offices; transport; stadia and leisure; retail; health and education; and data centres and others.

As a structural steel supplier, it has over the years been an important participant in major projects such as Heathrow Terminal 5, V&A Dundee, the O2 Arena, Wimbledon Centre Court, Fulham FC Riverside Stand, Arbor Bankside Yards, the Shard, the 2012 Olympic Stadium, the Emirates Stadium, Tottenham Hotspur Stadium, the First Direct Arena in Leeds, 22 Bishopsgate, Birmingham New Street Station, and even the Paris Philharmonic Hall, amongst scores of others.

More recently its order book has included a range of projects in the UK, in the Republic of Ireland, and also in Europe. They have included large data centres in Ireland and Finland, a car park at Manchester airport, as well as the new Google headquarters building in Kings Cross in London.

The last year saw sales rise from £403m to £492m, while pre-tax profits increased from £27.1m to £32.5m, lifting earnings to 8.4p (7.2p) and boosting its dividend to 3.4p (3.1p) per share.

Liberum Capital analyst Joe Brent, who rates the shares as a Buy, has a Target Price of 130p out on the stock.

He estimates that the current year to end March 2024 could see sales improve to £569m, with profits of £35.3m, earnings of 8.6p and a 3.7p dividend per share.

Over at Progressive Research analyst Alastair Stewart is looking for £570m sales this year, with £35.7m profits, worth 8.7p in earnings and paying a 3.5p dividend.

For the coming year he estimates £596m revenues, £37.8m profits, 9.3p earnings and a 3.7p dividend.

With a market capitalisation at £190m, this group’s shares at 60.5p are trading on a mere 7.03 times price-to-earnings basis, while yielding an appealing 5.78% to boost further its attractions.

The interims to 23rd September, will be announced on Tuesday 21st November.

I believe that this group’s shares continue to be undervalued but are now ready to gradually move back up to at least the 75p hit in July this year, then go higher still.

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

Gateley (Holdings) – Ongoing Track Record For Delivery

For the year to end April Gateley continued its unbroken record of year-on-year revenue and underlying profit growth.

The £205m capitalised company has over 1,400 people, some 1,000 of whom are fee earners, spread across offices in 15 UK locations and another in Dubai.

The group’s business is predominantly legal and professional services through Gateley Legal, advising over 5,000 clients across its four core business Platforms including Property, People, Business Services and Corporate.

Chairman Nigel Payne stated that:

This year has been another strong one for Gateley.

Our people have excelled in client delivery, they have continued to overcome every challenge presented to them, and have delivered further strategic progress for the business, combining to generate an excellent set of results.

As we focus on service line enhancing opportunities that meet our clients’ needs and fulfil our strategy to build a broader professional services group, our acquisition pipeline remains strong, trading in the current year is in line with the board’s expectations and we look forward to the immediate future with cautious optimism.”

James Allen at the group’s corporate brokers Liberum Capital has a Buy rating out on the shares, with a reduced Target Price of 290p a share (320p).

For the current year to end April 2024 his estimates are for revenues to rise to £177m (£163m), while pre-tax profits could increase to £26.6m (£25.1m), but with earnings of 15.5p (16.3p) and covering a lower dividend of 9.0p (9.5p) per share.

For the coming 2025 financial year Allen goes for £192m sales, £28.9m profits, 16.6p earnings and a 9.8p dividend per share.

This group’s shares have been oversold and now deserve a much higher multiple rating, especially so considering its impressive cash generation and its ongoing year-on-year revenue and profit growth record, despite the economic environment.

The group will be holding its AGM on Tuesday 17th October.

The shares, at 154p, really should be heading back up towards the 200p level achieved in late September last year, thereafter even higher.

The shares are a strong hold for existing shareholders and a bargain for new ones too, we could well be having a re-run of my original moving Target.

(Profile 18.05.20 @ 155p set a Target Price of 195p*)

Halfords Group (LON:HFD) – First Twenty Weeks Shows Gains

The UK’s leading provider of motoring and cycling products and services posted a 14% rise in revenue for the 20-week period ended August 18, showing strong gains across the group.

In June the £416m capitalised group reported that it was hit by a decline in consumer demand following its lockdown boom and the tough economic climate, resulting in a £38.3m drop in its annual profits.

When issuing the latest Trading Update CEO Graham Stapleton stated that:

“It’s been a good start to the year for Halfords, and our ongoing focus on essential maintenance and servicing is driving a strong performance in our Autocentre and Retail Motoring business.

Group Motoring, which now accounts for over 75% of our total sales, is a resilient sector and we’re progressing with our long-term plans to become a one-stop-shop for motoring ownership.

We’re continuing to do everything that we can to support our customers through the cost-of-living crisis and are determined to offer them unrivalled value.

For instance, our research shows that motorists who use manufacturers’ franchised dealerships can pay over 50% more for repairs compared with Halfords. With the average cost of car ownership pushing £300 a month, the last thing hard pressed motorists need, is to pay over the odds for repairs.

That’s why, today, we’re launching a campaign called Dealer or No Dealer, designed to raise motorists’ awareness of the choice and cost savings available to them for servicing and repairs, and that any work carried out by Halfords will not affect their manufacturer warranty.”

The group stated that its trading year to date was in line with expectations, with services remaining robust but discretionary markets softer.

As a form of guidance, it commented that the full-year pre-tax profit is expected to be between £48m and £58m.

The actual current analyst consensus ranges from £51.0m to £57.7m, with the average being £53.7m.

Well, that was certainly a more positive update than the group’s annual results published earlier this summer. 

The shares, which peaked at 234.80p in late June, closed last night at around the 190p level, at which I suggest that they are a good hold.

(Profile 18.05.20 @ 155p set a Target Price of 195p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)


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