Severfield’s share price is up more than 19% over the last month, and was already on an upward trajectory even before last week’s upbeat earnings report. The UK’s largest steel manufacturer and FTSE All-Share stock has seen an uplift from rising inflation, but also boasts a robust order book, while projections for Indian steel growth offers optimism for shareholders.
Severfield’s [SFR.L] share price has bounced back by 19.61% over the last month, and was already on an upward trajectory even before last week’s upbeat earnings report gave the shares a further boost.
The UK’s largest steel manufacturer and FTSE All-Share stock, which has worked on a string of high-profile projects, has seen an uplift from rising inflation, but also boasts a robust order book, and continues to benefit from its strong presence in India, with projections for Indian steel growth offering optimism for shareholders.
Severfield is the UK’s largest structural steel contractor by turnover, and one of the biggest in Europe. It is capable of producing 300,000 tonnes of fabricated steelwork per year.
Based in North Yorkshire, Severfield operates primarily in the UK and India. The company is involved in the design, manufacturing, fabrication, delivery, construction, and project management.
Some of the company’s high-profile projects include the Shard, the Tottenham Hotspur Stadium, and Wimbledon No.1 Court. Looking ahead, the group has also agreed to provide steel for Google’s headquarters at King’s Cross Station, and Everton’s new stadium in Liverpool.
Increase in half-year profit and revenue boosts outlook
The steel giant reported a year-on-year 17% jump in its recent underlying half-year earnings, to £12.1m. Revenue also increased 20% for the six months to £234.9m, from £195.9m a year earlier. The company was also able to cut net debt from £18.4m to £15.8m.
Severfield maintained a bullish outlook for its UK and Europe divisions in last week’s results, thanks to continued robust tendering and pipeline orders. The company is also benefiting from soaring inflation rates, which are helping to push up revenues it can generate. Costs across its supply chain have risen, however, but the firm has been able to offset these pressures though contractual protections it has in place.
The board maintained its forecasts for the full year. Its order book for the UK and Europe stands at £464m, while the company said its India order book of £143m reflects continued demand for structural steel in the country.
India steel growth projections offer boost for Severfield stock
The forecast for Indian steel demand is likely to remain strong in the second half of the financial year, with higher inflation, recession and the ongoing energy crisis in Europe adversely affecting the global steel industry, according to Argus Media. India's steel demand growth is estimated to be 6.1% for 2022 and 6.7% in 2023, according to the World Steel Association. While the figure has been revised slightly lower from April, it’s still the highest among top global steel consumers.
"While economists are talking about a recession in western countries, for India the debate is about the magnitude of economic growth rate … because of strong linkages between steel and the underlying economy, we have a positive outlook for steel demand in India in FY23," reckons senior vice-president of credit rating agency Icra group, Jayanta Roy. He added: "India's demand impetus is coming from government capex such as roads, railways and water and sanitation projects, and there is a revival in the auto sector too."
Reflecting the bullish outlook for steel in India, CEO Alan Dunsmore said the company is “ramping up the production at our Bellary facility towards its maximum capacity of 100,000 tonnes, while also looking to identify another plot of land to facilitate the future expansion of the business”.
Mark Robinsion of Investors Chronicle, who places a ‘buy’ rating on Severfield stock, believes the outlook in India coupled with the company’s strong performance bodes well, saying “shareholders can take heart from the continued strong volumes and capacity build at the Indian operations”.
What’s happening with the Severfield share price?
After rising 8.93% last week to 61.00p, helped by a post-earnings bounce, Severfield’s share price has gained 30.76% since its 52-week low at 46.65p on 29 September. Despite last week’s gains, Severfield stock remains 7.23% lower year-to-date, and down 24.59% from the 52-week high of 76.00p, reached on 3 February.
What’s next for Severfield’s share price?
The four analysts offering 12-month price targets on Severfield stock have a median target of 100.50p, with a high estimate of 130.00p, and a low estimate of 88.00p, according to the Financial Times. The median estimate of 100.60p represents a healthy potential upside of 64.75% versus last week’s close at 61.00p. And with three 'buy' ratings, and one 'outperform', the stock has a consensus ‘buy’ recommendation from analysts.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.