Took a brief look at Severfield (SFR) and has picked up some shares in the last days. Seems like an interesting opportunity from a risk:reward perspective, albeit not without risks on the downside. Would be happy to hear your thoughts on the situation.
SFR was founded in 1978, listed on the stock exchange in 1988, and is a British company specializing in the design, manufacture, and assembly of steel structures for large construction projects. They supply steel structures for, among others, bridges, commercial buildings, and infrastructure facilities in the UK and internationally. With approximately 1,500 employees, the company generates revenues of around £450m (10y CAGR of 8%, partially driven by acquisitions) and has had positive EBIT every year since 2014 (6% avg). Before that, the company had two crisis years and carried out a rights issue where NOSH increased from 89m to 296m.
On March 3, the company released a trading update (the second profit warning in four months – now citing a challenging market with pressured price levels, a reduced order book, a discontinued buyback program of which (£9m out of £10m had already been completed), cost savings, and expected reduced profit for FY26), after which the stock dropped 46%. The share is now down c. 80% since the first profit warning in November 2024.
On stock forums, there is discussion about how recurring quality issues, especially on several bridge projects, may have damaged the company’s reputation. Additionally, these issues have resulted in significant one-off costs (£20m provision during FY25) which may not be fully covered by insurance. On March 26, it was announced that CEO Alan Dunsmore would leave the company by the end of June, which was also not well received by shareholders.
For FY25, EBT is expected to be £18-£20m (£3m-£5m in 2H), and net debt is expected to decrease to £45m-£50m by the fiscal year-end in March 2025 (pro forma 45% net gearing). The company sees some improvement by FY27, with several large projects already secured and opportunities within data centers, industry, and office buildings in London.
On March 28, Progressive Research released a sponsored analysis with a positive view of the current valuation and risk/reward. They expect a reduced – but at least not canceled – dividend from 3.5p to 1.4p (still a 6.8% yield!). The analysis also mentions how the “new world order” could be something positive for the company, as…
