Severfield Plc - Facing Unprecedented Challenges

FTSE All-Share listed Severfield Plc (LON: SFR) is an industrial engineering Company, which is engaged in the business of structural steel.

Recent News

On 17 June 2020, the Company appointed Kevin Whiteman as Non-Executive Chairman with effect from 3 September 2020, and he will be replacing John Dodds (who served the Board for nine years as Chairman).

Financial Highlights (for the year ended 31 March 2020, as on 17 June 2020)

(Source: Company Website)

In the year ended 31 March 2020, the revenue increased by 19% to £327.4 million (2019: £274.9 million), driven by an increase of £38.1 million in order flow and higher production activity, particularly in H2 FY20. Underlying profit before tax rose by 16% to £28.6 million in FY20, and this was ahead of strategic 2020 profit target of £26 million. Moreover, the underlying basic earnings per share increased by 15% to 7.7 pence in 2020 (2019: 6.7 pence).

In October 2019, the Group had completed the acquisition of 100% of the share capital of Harry Peers & Co Limited for initial consideration of £18.9 million, with contingent consideration of up to £7 million payable in FY21. The Group has shown a good cash generation, with net funds of £16.4 million (excluding IFRS 16 lease liabilities). On 1 June 2020, UK and Europe order book stood at £271 million.

Share Price Performance


1-Year Chart as on 15 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Severfield Plc’s shares were trading at GBX 61.68 on 15 July 2020 (before the market close at 11:55 AM GMT+1), up by 1.11% against the last day closing price. Stock 52 week High and Low were GBX 96.00 and GBX 57.20, respectively.

From the technical standpoint, shares were trading well below the short-term support level of 50-day simple moving average prices, which reflects a downtrend trend in the stock.

Valuation Methodology



Key Risks

The Group works on complex and potentially hazardous projects, which require continuous monitoring of health and safety risks. The Company operates in multiple locations, and any change in the economic and political policy could hamper the Company’s operating performance.The recent outbreak of COVID-19 may have a significant and prolonged impact on global economic conditions.

Conclusion

The Group has shown a decent performance in the financial year 2020. However, the outlook remains uncertain due to COVID-19. The Group has continued progress with ‘SSS’ (Smarter, Safer, More Sustainable) initiatives with an increased focus on manufacturing efficiency. The Company’s operations are impacted by political and economic uncertainty in the UK market. Moreover, dividend payment decisions deferred until greater visibility over the impact of COVID-19. Also, the Company operates in a competitive market, which can require further investments to be made by the Group.

Based on the headwinds faced by the Group and valuation as done above, we have given a "WATCH" recommendation at the current market price of GBX 61.68 (as on 15 July 2020, before the market close at 11:55 AM GMT+1), while we look for any upcoming catalysts in the near term.

Galliford Try Holdings Plc – Decent Update in the Challenging Environment

FTSE All-Share listed Galliford Try Holdings Plc (LON: GFRD) is the UK based Household Goods Company, which is engaged in the business of housebuilding, regeneration and construction.

In September 2020, the Company expects to announce the results for the full year.

Trading Update (for the year ended 30 June 2020, as on 15 July 2020)

The Group’s order book increased by 10% to £3.2 billion (2019: £2.9 billion), with all operations now open and underlying operations performing well. The Group also secured 90% of the revenue for the new financial year (2019: secured 88%). The Company stayed a well-capitalised business, with net cash balances at 30 June 2020 of £195 million and no debt or associated covenant. For the six months to 30 June 2020, the average month-end cash was £140 million. Further, the cost of implementing new operating procedures and site programmes has led to a material decrease in gross margin in FY20. However, the productivity levels on the sites have gradually surged since the beginning of the lockdown.

Key Contracts Wins

It has secured a £20 billion Crown Commercial Service's Construction Works and Associated Services Framework. Also, it won a £1.5 billion YORbuild Major Works Contractors Framework in the north of England. Further, it secured a £100 million of education facilities; an £85 million mixed-use development at London; and the new £54 million women's national prison facility at Cornton Vale, Stirling.

Share Price Performance


1-Year Chart as on 15 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Galliford Try Holdings Plc’s shares were trading at GBX 107.98 on 15 July 2020 (before the market close at 11:48 AM GMT+1), up by 6.87% against the last day closing price. Stock 52 week High and Low were GBX 887.00 and GBX 98.20, respectively.

From the technical standpoint, shares were trading well below the short-term support level of 50-day simple moving average prices, which reflects a downtrend trend in the stock.

Key Risks

The Company’s supply chain will be impacted by the uncertainty created due to ongoing Brexit or COVID-19 situation. The Group’s business is exposed to economic and market fluctuations, which may adversely affect the Group’s business and financial performance.Furthermore, the sector is also exposed to political, financial and operational risks, each of which has the potential to impact company/industry performance significantly.

Outlook

Considering the Covid-19 uncertainty, the Group suspended financial guidance. The Group has entered the new financial year 2021 with a high-quality, and carefully risk-managed order book. From this, the Group expects to increase operating margins, maintain the disciplined approach to contract selection and capitalise on the actions taken to reduce costs. From long-term economic and social trends, the Company is well-positioned to benefit that offer growth opportunity for many years to come.  The Group has a decent track record of value creation for the stakeholders and delivering the other objectives as an independent business. However, the Group is widely exposed to the Brexit or COVID-19 related uncertainties and devaluation of the Sterling, which could have some material impact on the Group’s performance.

Based on the headwinds faced by the Group and valuation as done above, we have given a "WATCH" recommendation at the current price of GBX 107.98 (as on 15 July 2020, before the market close, before the market close at 11:48 AM GMT+1), while we look for any upcoming catalysts in the near term.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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