Severfield PLC (LON: SFR)

Severfield PLC is an FTSE All-Share index listed structural steelwork company based in the United Kingdom. The Company is focused on the construction contract business and serves the construction and infrastructure markets consisting of commercial offices, industrial and distribution, stadia and leisure, retail, and data centres.

Recent Trend of Dividend Payments

SFR has shown a decent year on year growth of around 9% in the interim dividend attributable for H1 FY22. Moreover, the Company had paid an interim dividend of 1.2 pence per share on 07 January 2022, while the ex-dividend date was 09 December 2021. In comparison, the Company had paid an interim dividend of 1.1 pence per share for H1 FY21.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• Market Leadership: The Company is the UK’s market-leading structural steel company, known for delivering world-class engineering and design excellence. The company has a huge experience and capability in the design, fabrication, and construction of steel structures.
• Impressive Orderbook: SFR’s UK & Europe orderbook reached record levels of £393 million as of 1 November 2021. Moreover, it includes new bridge orders and the new stadium for Everton F.C. Meanwhile, the order book for India was £140 million as of 1 November 2021.
  

Key Risks 

• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Increasing Freight rates: Any increase in freight rates could put pressure on the delivery cost, impacting the margins of the company.
• Disruption in the Supply Chain: The failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delays and disruptions to the Group’s projects and operations.

Key Fundamental and Shareholders Statistics of Severfield PLC. 

M & G Investment Management Ltd. [Activist] is the most significant shareholder as it holds nearly 33.53 million shares as of 31 December 2021.       

H1 FY22 Interim Results (for the six months ended 30 September 2021, as of 23 November 2021)

 (Source: Company Filings)

• Top-Line Business: The top-line revenue witnessed a year-on-year growth of around 5% to £195.9 million during H1 FY22.
• Profitability: On the profitability front, the underlying profit before tax improved by 23% to £10.3 million during H1 FY22.
• Balance Sheet: The Company reported a period-end net debt of £6.7 million as of 30 September 2021.
  

Financial Ratios (H1 FY22)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 11 March 2022 at 08:16 AM GMT, SFR’s shares were trading at GBX 64.20, down by around 0.31% against the previous day closing price. Stock 52-week High and Low were GBX 84.84 and GBX 62.60, respectively.

On a daily chart, the stock price is sustained around the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~36.82.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company has replicated the improved business performance of FY21 in the H1 FY22 as it had shown a significant growth in the top-line revenue, profit before tax, and the interim dividend. However, the rising steel price due to the Russia-Ukraine conflict would adversely impact the working capital in the short term. Moreover, the profit for FY22 would remain more weighted towards the second half. SFR remained well-positioned with the future workload for the remainder of FY22 as UK & Europe order book reached record levels as of 01 November 2021. Overall, the Company remained well-equipped to generate consistent returns for the shareholders with a robust order book across Europe & the UK and excellent revenue visibility for FY23.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong UK construction PMI figures, decent profitability, dividend growth, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Severfield PLC at the current price of GBX 64.20 (as of 11 March 2022 at 08:16 AM GMT), with lower-double digit upside potential based on 10.17x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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