Will improving steel price add to the advantage of ASX listed BlueScope Steel's shares?

  • Nov 19, 2019 AEDT
  • Team Kalkine
Will improving steel price add to the advantage of ASX listed BlueScope Steel's shares?

Iron Ore fines 62% Fe futures, United States at the time of writing was trading at US$82.80 (as on November 14, 2019), a ~32.78% decline from its 52-week high level of US$123.19 per tonne (July 1, 2019). LME steel scrap price as on November 15, 2019 was reported at US$261.5 per tonne, as compared to US$241 per tonne as on October 15, 2019. With the cooling-off of macroeconomic concerns, steel demand is expected to rise which will therefore lead steel prices in the coming times. Although decrease in iron ore prices would hurt iron ore miners, improvement in steel prices would help the steel manufacturing companies.

Some of the important companies into iron & steel space are BlueScope Steel Limited, Fortescue Metals Group Ltd and Sims Metal Management Limited. Let’s go through their recent updates to know them better.

BlueScope Steel Limited (ASX: BSL)

BlueScope Steel Limited (ASX: BSL) has its strategic focus in growing branded steel businesses with strong channels to market for buildings and coated & painted products and deliver competitive commodity steel supply in its local markets (Australia and NZ Steelmaking). The group manufactures and markets a wide range of branded products that include pre-painted COLORBOND® steel, zinc/aluminium alloy-coated ZINCALUME® steel and the LYSAGHT®range of buildings products for its Asia-Pacific region.

BSL FY19 Performance (Source: Company’s Report)

Recently, the company announced discontinuation of legal proceedings in New Zealand by plaintiff (a special purpose vehicle called NZ Iron Sands Holdings Limited (NZIS)) against one of its subsidiaries, Toward Industries Limited. The small amount of NZIS’ legal costs will be paid by ‘Toward’, with no financial impact on BlueScope Steel.

In another update, BSL mentioned that it bought back 33,507,037 shares at $419,867,026.7, with highest price of $14.070 and lowest price of $13.510 (as per announced on November 11, 2019).

On 17 October 2019, BSL notified the market that Mr Lloyd Jones is expected to step down from the Board at its AGM or Annual General Meeting to be held on November 21 this year. Mr. Jones has been working with the Board since September 2, 2013.

Also, the company is expected to release its half-year results and an interim dividend update on February 24, 2020; Ex-dividend date, record date and payment date are expected on February 28, 2020, March 2, 2020 and March 31, 2020, respectively.

On the stock information front

On November 19, 2019, BSL stock was trading at $14.040 down by 0.567% (at AEST 1:39 PM), with the market cap of ~$7.17 Bn. Its current PE multiple is at 7.440x and its last EPS was noted at $1.899. Its 52 weeks high and 52 weeks low stand at $15.090 and $10.305, respectively, with an annual average volume of 3,053,449. It has generated an absolute return of 9.80% for the last one year, 14.15% for the last six months, and 26.30% for the last three months.

Fortescue Metals Group Ltd (ASX: FMG)

Fortescue Metals Group Ltd (ASX: FMG) is involved in the exploration, development, production, processing and sale of iron ore.

Recently, on 15 November 2019, the company lodged an application for special leave to appeal the decision of the Full Federal Court in matter of Fortescue Metals Group v Warrie (on behalf of the Yindjibarndi People). It has currently seven agreements in operation providing native title royalties as well as heritage management, training, employment and business opportunities. It has reconfirmed that the court’s verdict will not have an influence on its present or forthcoming operations or mining period at the Solomon Hub. Further, it also doesn’t expect any material financial impact on the businesses as a result of decision.

In another update, the government of the Republic of Guinea notified that FMG is not the preferred bidder in the recent tender for mining rights on mineral deposits on Simandou Blocks 1 and 2. Rather the government would be proceeding with detailed negotiations with the preferred bidder in the coming months. However, FMG is focused on delivering its US$3.875 bn investment in the Eliwana and Iron Bridge projects in the Pilbara. Additionally, the company will continue to explore global opportunities aligned to its strategy and expertise.

Previously, Reward Minerals Ltd informed the market that it has executed a Farm-in and Joint Venture Agreement with FMG in the McKay Range, located in north-western Western Australia. FMG as an operator of this JV has the right to earn 80% joint venture interest in the Tenements by spending $2 Mn over four years, with a minimum expenditure obligation of $0.4 Mn.

September’19 Quarter Key Highlights

The company via a release on 24 October 2019 mentioned that during the quarter, on safety terms, the total recordable injury frequency rate (TRIFR) was reported at 2.7, an improvement of 4% than previous quarter. Shipments for the period was reported at 42.2mt, a 5% improvement than quarter one of the FY19. C1 costs decreased by 2% to US$12.95/wmt, as compared to quarter one of the FY19. Average revenue received for the period improved by 89% to US$85 per dry metric tonne (dmt), as compared to quarter one of the FY19. Under balance sheet, the company reported repayment of US$200 Mn and re-financing of the balance of the US$1.4 Bn Term Loan on improved terms. Net debt as on September 30, 2019, was reported at US$0.5 Bn, as compared to US$2.1 Bn as on June 30, 2019.

Quarterly Production Summary (Source: Company’s Report)

On the stock information front

On November 19, 2019, FMG stock was trading at $9.180, up 1.436% with the market cap of ~$27.86 Bn. Its current PE multiple is at 6.160x and its last EPS was noted at $1.470. Its 52 weeks high and 52 weeks low stand at $9.610 and $3.454, respectively, with an annual average volume of 15,608,333. It has generated an absolute return of 143.61% for the last one year, 5.17% for the last six months, and 18.15% for the last three months.

Sims Metal Management Limited (ASX: SGM)

Sims Metal Management Limited (ASX: SGM) is involved with the purchasing and selling of ferrous and non-ferrous recycled metals and the provision of ecologically responsible solutions for the disposal of post-consumer electronic goods, comprising of Information technology assets recycled for commercial consumers.

Recently, the company announced issuance of 48,294 ordinary shares on Exercise of options under the Sims Metal Management Long Term Incentive Plan.

Results of Annual General Meeting

On November 14, 2019, the company published its Annual General Meeting result where all the concerned resolutions were passed such as - re-election of Ms Deborah Otoole, election of Mr Mike Kane, election of Mr Hiroyuki Kato, renewal of proportional takeover provisions in constitution, remuneration report, participation in the company’s long term incentive plan by Mr field and change of company name.

While addressing the Annual General Meeting, SGM’s chairman highlighted that the company finished the year with a strong cash position of $347.5 Mn. An underlying EBIT for the period decreased by 16% to $230.3 Mn, mainly attributable to the challenges such as trade tensions, slowing economic growth in key markets, and quotas resulted in volatile demand and falling prices for ferrous and nonferrous materials. These challenges are expected to continue in the coming times and may negatively impact the FY20 results.

FY19 underlying NPAT was reported at around ~$162 Mn, representing an underlying diluted EPS of 78.8 cents for FY19. Sales revenue for FY19 was reported at $6,640 Mn, a 3% increase as compared to FY18 mainly due to sustained volumes and despite a declining price environment but benefiting from weakness in the Australian Dollar. Sales volumes totalled 9.8 Mn tonnes, which was in-line to the previous year.

The Board of Directors declared fully franked total dividends of 42.0 cents per share for FY19, representing 53% underlying payout, near the top of the Group’s 45% to 55% target range.

FY19 Key Metrics (Source: Company’s Report)

On the stock information front

On November 19, 2019, SGM was trading at $11.085 up 2.166% (at AEST 2:33 PM) with the market cap of ~$2.2 Bn. Its current PE multiple is at 14.450x and its last EPS was noted at $0.751. Its 52 weeks high and 52 weeks low stand at $12.980 and $8.530, respectively, with an annual average volume of 1,140,470. It has generated an absolute return of -11.21% for the last one year, 9.93% for the last six months, and 12.20% for the last three months.


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