One Steel Company with Decent Growth Prospects

As the market participants are aware, the global economy was significantly impacted by the outbreak of the COVID-19 pandemic. The lockdowns which were imposed impacted the performance of several companies. However, there are anticipations that some companies could now perform reasonably well. This company belongs to the industrials sector, and it is possessing robust balance sheet which could help it in moving forward. The stock price of this company has witnessed a rise of ~33.65% in 9 months. In the time span of past 1 year, the stock rose by ~87.8%.

Summary

  • STU forecasts achieving Earnings Before Interest and Tax (EBIT) of more than $17 million in H1FY22, against $8.9 million in the pcp.
  • The company also expects to achieve Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of at least $26.5 million for the six months to 31 December 2021 compared to $16.8 million in the pcp.
  • STU has reported 14% YoY growth in revenue for the first 4 months of the financial year to the end of October 2021 month.

STU Details

Steel & Tube Holdings Ltd (NZX: STU) operates in 2 divisions – 1) Distribution as well as 2) Infrastructure. In distribution, products are sourced from preferred steel mills and distributed through its national network of branches. In Infrastructure, the company has continued to win key project work with the help of quality as well as service offering.

FY21 Result Performance (For the Year Ended ended 30 June 2021)

  • The company has recorded a 15% growth in revenue to $480.0 million with growth in sales as well as volume across its distribution and infrastructure businesses.
  • Earnings Before Interest and Tax (EBIT) was improved to $21.8 Mn. On the normalised basis this was $19.0 Mn as compared to $0.4 Mn in the prior year.
  • The company witnessed a strong return to profitability with a net profit after tax of $16.1 million.
  • The board has declared an unimputed final dividend of 3.29 cps. This was declared on 23rd August 2021.
  • The company has generated a robust operating cash flow of $31.5 million driven by sustained improvement in working capital management and debt collection.

Key Financial Numbers

Source: Company Reports, Analysis by Kalkine Group

Also Read: Can these 5 NZX growth stocks be explored ahead of 2022?

Provides COVID Vaccine Incentive to Employees

On 26 November 2021, the company released the notice with respect to the payment by Steel & Tube Holdings Limited of the expenses related to the acquisition of shares in the company which were given to the eligible employees. STU established incentive scheme in order to encourage employees to become vaccinated against the virus before 15th November 2021.

The company has paid consideration of $1.32 per share with respect to the 10,667 ordinary shares in Steel & Tube Holdings Limited.

Also Read: Why to consider 4 NZX infrastructure stocks before 2022?

H1FY22 Guidance

STU has now guided achieving Earnings Before Interest and Tax (EBIT) of more than $17 million in H1FY22, against $8.9 million in the pcp. Further, it expects to achieve Earnings Before Interest, Tax, Depreciation and Amortisation (or EBITDA) of at least $26.5 Mn as compared to $16.8 Mn in the pcp. The earnings are expected to be driven by growth in volume in target segments along with the positive market conditions, enhanced gross margin disciplines, and sustained decrease in percentage operating costs.

Stock Recommendation

As per the company, the demand for steel as a sustainable and preferred product stays robust across all the sectors and STU has invested in inventory, mainly essential, high demand products.

The company holds a strong balance sheet, and all the debt has been repaid. The company is possessing $25.0 Mn in net cash at year end. STU emphasis remains on gross margin improvement, customer delivery, and boosting sales in attractive segments.

STU has managed to post the 14% YoY rise in the revenue for the first 4 months of the financial year to the end of October 2021. The company was able to build on the robust financial as well as operational performance from the previous financial year.

The company holds a strong pipeline of secured work and is better placed to take benefit of new market and product opportunities.

STU will sustain investment in digital technologies to further enhance the customer experience as well as boost the customer offer, that will aid in sustaining further competitive advantage.

The stock of the company ended the session at NZ$1.390 per share, reflecting the rise of 1.46% on 3rd December 2021. 

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