17th Apr 2024 11:48
(Alliance News) - Severfield PLC delighted analysts on Wednesday with a confident trading update and a GBP10 million share buyback.
Shares in Severfield leapt 15% to 62.00 pence in London on Wednesday.
The North Yorkshire, England-based structural steel group said it made good progress during the second half of its financial year that ended on March 30.
On the back of its progress, the company said it intends to launch a GBP10 million share buyback programme to return surplus capital to shareholders and reduce its share capital.
Severfield expects to report a full-year result slightly above its own previous expectations.
"We continue to see large project opportunities in both our Commercial and Industrial division and Nuclear and Infrastructure division, in the UK, continental Europe and Ireland. These include projects in support of a low-carbon economy such as battery plants, energy efficient buildings, manufacturing facilities for renewable energy and offshore wind projects."
Further, it said: "In our Modular Solutions division, we have maintained our focus on growing our Severstor product ranges, which attract higher margins, and on developing our growing pipeline of opportunities, including in growth areas such as renewable energy and data storage."
Severfield added: "The group is performing well, the outlook is positive and our businesses are well-positioned in markets with excellent long-term growth opportunities."
The company said it appointed Charlie Cornish as new chair. He will join the board on May 1 and take over as chair after the annual general meeting on July 30.
Peel Hunt increased its March 2024 pretax profit estimate to GBP35.5 million from GBP34 million, but left 2025 and 2026 forecasts unchanged.
However, the broker explained the launch of the GBP10 million buyback increases earnings per share forecasts for 2025 and 2026 by 1% and 6% to 8.9p and 10.1p respectively. This assumes the buyback is completed in March 2025 at an average of 55p per share.
Peel Hunt noted net debt should finish the 2024 financial year at GBP10 million, compared to its GBP30 million estimate. The beat is a balance between underlying working capital and further advance payments, and provides the catalyst for the buyback, the broker explained.
Peel Hunt said the encouraging factor was that the performance was "broadly based," headlined by a GBP511 million order book, compared to GBP482 million at the half year.
It was also a "positive" to see the European content of the order book at 32%, compared to 13% at the half year, the broker remarked.
Peel Hunt commented that Severfield’s low valuation "is a mystery to us."
"Buying back cheap stock is exactly the right action to be taking in the short term, while India is a considerable value opportunity in the medium and long term," it thinks.
The broker reiterated a 'buy' rating and 110p per share price target.
Analysts at Jefferies agreed.
"We view this as a strong update from Severfield, with management delivering a better-than-expected [financial 2024] outcome."
"Management continues to execute strongly, the UK order book is very strong, and we remain upbeat about the Indian JV's outlook," it added.
Jefferies reiterated a 'buy' rating, commenting the shares appear "particularly cheap."
By Jeremy Cutler, Alliance News reporter
Comments and questions to [email protected]
Copyright 2024 Alliance News Ltd. All Rights Reserved.
Related Shares:
Severfield