Severfield (LON:SFR)

I met with Alan and Adam, the CEO and FD respectively over lunch held at Edison.

The 1H results confirmed all was going to plan, even with Brexit not a help for the core UK business as India, RoI and mainland European business is meaningfully adding to the order book. The core order book is £323m. The recent Henry Peers acquisition (8x ebitda) will add £1m to FY20 profits, costing £25m in totality if certain financial and operational targets are met and coming with a £20m order book. Harry Peers Ltd has a focus on nuclear, process industries and power generation sector so adding new sectors. Peers only recently became big enough to interest SFR as the third-generation owner retires with the management locked in.

The 1H revenue was £131m, underlying PBT £8.2m and in line. FY PBT of £26m is expected with revenues around £320m. SFR worked on 70 projects in the 1H and the average contract length 9-12 months. Cash generation was £22.5m, EPS 2.3p and the dividend upped by 10% to 1.1p. The UK/Euro order book was £323m. The Indian order book reached £134m with the SFR profit share (50/50) trebled with revenues now £56m and PBT £3.5m, with £1.3m (after tax) due to SFR. Investing in the Indian opportunity / jv partner has proved a very good business decision. The Indian JV capacity for steel making is to increase to 90k tonnes by end 2020, up from 60k. As mentioned before, this is the dial moving part of the SFR story. The 2016 PLC target of £26m profits by FY20 is ‘looking on track’ up from revenues of £200m in 2015 and profits £10m. The B/S remains strong, competitor pricing sensible and the £14m increased debt for Peers to be paid back ‘reasonably quickly’. The mix of margins has changed, a worry for some at the table but will soon reverse as commercial business picks up in India. The profit split is to return to one third, two thirds with good profit recognition due in the 2H mentioned. In ‘line of sight for FY’. IFRS 16 is a modest hit, reclassifying £0.4m of FY profits. Peers will add £1.2m of profits in a FY. Full year capex is estimated to be £8m with no working capital issues either from India (now self-financing) or issues from the…

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