Severfield: steeling itself for a turnaround jump

The StockRank jumpers articles have been a hit with subscribers, and Ed discussed these findings recently in a webinar. However, the analysis he presented isn't just a historical look at past returns, but an ongoing opportunity to find companies whose prospects may be improving. The team have added the ability to screen for recent Stock Rank jumpers, and Ed wrote an article including some recent hits.

Severfield (LON:SFR) is one such company on the list, whose recent Super Stock status is driven by results released on 23 June. This is a sector I know reasonably well, having invested in its high-quality competitor, Billington Holdings (LON:BILN) , for a few years now. Perhaps the Stock Rank jump is a sign that I should consider spreading my sector investment more widely. Writing up a Stock Pitch is a great way to find out.

[Disclosure: at the time of publication, the author does not hold a position in Severfield.]

The Pitch

Formed in 1978, Severfield (LON:SFR) is the UK's largest structural steel group and among the biggest in Europe, with total fabrication capacity of around 165,000 tonnes across five UK plants. It employs around 1,500 staff and has an estimated 18% of the domestic market. Investors will no doubt have seen many of its landmark structures, including the 2012 Olympic Stadium, the Shard, Wimbledon Centre Court and the Emirates Stadium. Recent acquisitions include Harry Peers & Co in 2019, DAM Structures in 2021 and the Dutch group VSCH in 2023, which have pushed the group into the nuclear and rail sectors, and geographically into continental Europe.

The business has two main operations:

• UK & Europe: Split into the Commercial & Industrial and Nuclear & Infrastructure divisions, now including the Dutch subsidiary.
• India: a 50/50 joint venture with India's largest steel producer, JSW Steel, called JSW Severfield Structures (JSSL).

Stockopedia rates the shares a Super Stock, with a StockRank of 95. That is built on a strong Value Rank of 90 and an even stronger Momentum Rank of 92, though the Quality Rank is a much more modest 55, a legacy of a difficult FY26. The Ranks suggest that this is a reasonable business undergoing a significant turnaround that has only just started to be reflected in the valuation.

The Big Picture

FY26 was a low point for the business. The combination of weak market conditions and a company-specific issue led to trading falling significantly below the previous year on an adjusted basis. On 26 November 2024, the group took an initial £20.4m provision for structures "not in compliance with the client's weld specification requirements," covering 12 projects completed or ongoing over the previous four years. That charge, alongside other exceptional costs, turned an underlying FY26 PBT of £10.5m into a reported pre-tax loss of £39.9m, and underlying EPS of 2.7p into a reported loss per share of 12.0p.

The company entered this period with increasing net debt of £43.1m excluding leases, putting it in a potentially precarious position. Perhaps unsurprisingly, this led to a boardroom shake-up. Alan Dunsmore's 15-year tenure with the company, first as CFO in 2010 and then as CEO from 2018, ended by mutual consent in June 2025. CFO Adam Semple stepped down in October last year after 12 years with the firm, shortly before Paul McNerney, a veteran executive from Tier 1 contractor Laing O'Rourke, took over as CEO in November 2025. Andrew Page was appointed CFO earlier this year.

Under McNerney, the company closed down the underperforming Modular Solutions division in early 2026. They booked substantial exceptional clean-up charges to "clear the decks", intentionally pivoting the company from a traditional fabrication-led model into a capital-light, complex project specialist.

Cash flow in FY26 improved following working capital improvements and reduced capex spend. Then, in June, the group refinanced its banking facilities to give a renewed £60m revolving credit facility, alongside its existing £7.6m term loan (amortising to December 2027), and a new £30m accordion option subject to lender consent.

The recent jump in StockRank is driven by the recent results announcement, which confirmed that the company is on track for a recovery in prospects, delivering FY27 underlying PBT of £12m-£15m. Brokers forecast this recovery to continue, and most importantly, the order book is filling up in the right places to support it.

Going Deeper

Several factors point to Severfield being in the right place at the right time:

• High-capacity delivery: In February, Severfield completed a 23,000-tonne structural frame for the Agratas battery plant in Bridgwater, Somerset, which will manufacture EV batteries, including for Jaguar Land Rover. This took less than half a year to deliver and shows that being a market leader enables them to take on projects of a scale that few in the industry can manage.
• JV Strength: In India, JSSL's work on the hyperscale Iron Mountain facility in Navi Mumbai, a 6.3MW data centre due to be operational in 2027, positions the joint venture in a sector offering both higher margins and repeat business. The India JV is showing particularly strong order book growth, and is up 20% in a month:
  
  The outlook for this region is particularly strong since India's GDP is forecast to grow rapidly, with the steel sector a particular beneficiary of infrastructure and urbanisation spending.
• Data centre driver: Recent UK & Europe wins are concentrated in the data centre sector in the UK, Germany and Sweden. Continental Europe rose from 28% to 32% of the UK & Europe order book last month, reflecting both recent contract awards and the continued build-out of the group's activities across the continent since the 2023 VSCH acquisition.
• Rising revenue visibility: Of the total £534m UK & Europe order book, £375m is scheduled for delivery in the next 12 months, giving roughly 90% cover of the FY27 revenue consensus.
• Margin recovery play: Medium-term ambitions set following the change of managemnet and updated strategy are: Revenue of £500m-£550m, with operating margins of 7-8%, giving underlying profit before tax of £40-50m (including £10m from the India JV). While no specific timeline is given on these, the company has historically generated close to £30m PBT, making these achievable with a fair wind. If they do make it, the current £150m EV will certainly prove to be too low.

What The Brokers Say

The company is well covered, with two brokers' notes and two issuer-sponsored pieces of research currently available. Usefully, for a company that has historically had a much higher market cap, all of this research is accessible to individual investors.

• FY27: Of the three notes that provide forward forecasts, Panmure Liberum, Singer and Progressive all come in at £13.0m for FY27 PBT. This is the lower end of the company's guidance range, so we can perhaps expect upgrades over time. However, FY27 will be H2-weighted, so we probably won't see any increases in the near term.
• Outer years: For FY28, both Panmure Liberum and Progressive suggest we should expect £17.0m PBT, whereas Singer is slightly more conservative at £16.8m. Progressive recently introduced a FY29 PBT forecast of £22m, suggesting that they see the strong recovery continuing.
• Price Targets: Panmure Liberum have 48p, based on a sum-of-parts valuation method. Singer is again a bit more conservative at 42p. Both suggest that the company trades at a discount to sector peers based on their FY27 numbers, giving some immediate upside if the company were to rerate closer to the average.

The Bear Case

• FY27 H2-weighting: H1 profitability is expected to continue reflecting lower-margin work secured in a competitive pricing environment, with the larger, higher-quality contracts not expected to contribute meaningfully until FY28. Project timing can slip, and in the current economic climate (the Construction PMI indicates contraction in June 2026, with particular weakness in civil engineering), there is always the risk that an H2 weighting becomes a full-year profits warning.
• Execution risk: The weld specification provision is a reminder that recent execution has been poor. While insurance coverage mitigates the issue somewhat, £18m of bridge remedial costs are still in the FY27 cash flow bridge, which shows the issue is not yet fully resolved.
• Financial weakness: The debt refinancing removes the risk of a short-term cash crunch. However, the recent debt reduction is driven by working capital improvements, which look unlikely to be repeated. Due to the current provisions, the FY26 balance sheet had a current ratio of just 1.05, well below the company's usual range. It will take several years of profitable trading to rebuild the balance sheet to a point where the company can consider paying dividends again.
• Lack of director holdings: Current C-suite management are relatively new appointments. Still, they seem to be reluctant to back the recovery with their own money. The CEO appears to have no holdings, and the CFO's recent purchase came in below £2k.
• The Billington conundrum: Smaller listed competitor Billington Holdings (LON:BILN) has suffered from similar weak market conditions recently. However, apart from the recent jump in the Stock Rank favouring Severfield, Billington appears better on almost every other metric. It has a higher long-term average ROCE than Severfield, a much better balance sheet and is cheaper on forward metrics.
  

The Bottom Line

Following weak end markets, pricing pressure, and an issue with the quality of past work, it is unsurprising that long-term management recently fell on their swords. The new team is now in place and is driving a turnaround plan that has led to higher order intake and improved order quality. All three geographies grew their books in June. Europe and India continue to gain share of the mix. The company has set challenging medium-term ambitions that, if achieved, will result in a significantly more profitable business. A June refinancing gives the group room to see the plan through.

Forward forecasts assume a modest recovery and still leave the company relatively cheap on a price-to-earnings basis. The recent jump in Stock Rank captures this lowly valuation and improving prospects. I can see why investors who believe in the recovery will want to buy in now that the order book is demonstrating the progress they are making.

However, the weld specification remediation works continue to take time and cash, and the presence of significant provisions on the balance sheet means the company is far from financially secure enough to consider restarting dividend payments. In the short term, an H2 weighting may not be well received when the weak H1 numbers are revealed, and there is a risk that any slipage could lead to a full-year miss. This would undoubtedly take the wind out of the recent share price recovery.

Overall, has the recent Stock Rank jump been enough to convince me to shift some of my sector exposure from Billigton to Severfield? Not quite. If anyone takes the opposite view, I'd love to hear from you in the comments below.

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[Disclosure: At the time of writing, Mark does not hold a position in Severfield (LON:SFR). He does hold a LONG position in Billington Holdings (LON:BILN)]