Top Stocks ASX 200 :-

Get up to 2 Years of free subscription by inviting your friends to KALKINE!

For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 

Bluescope Steel Video



 

Stock Of The Day - Bluescope Steel (BUY)

The highlights for the first half FY2015 results for BlueScope Steel Limited (BSL) entailed NPAT of $ 92.7 million representing a substantial increase of $ 89 million over the same period in the previous year. The underlying NPAT of $ 79.6 million (after adjusting for items such as defined benefit superannuation and tax asset adjustments) represented an increase of $ 30.5 million over the previous year. As at 31 December 2014, the net debt stood at just over $ 408 million which works out to be 0.6 times the underlying EBITDA. The board has declared a fully franked dividend of 3 cents per share and future dividends will be determined on the basis of the performance and the outlook for the company.


Financial Headlines (Source: Company Reports)

Australian Steel Products reported an underlying EBIT of $ 64.7 million which was $ 50.8 million more than the previous year. The improvement was due to lower costs of raw material, a higher level of activity in domestic residential building and the positive contributions made by acquisitions.


Business Segment_Contribution (Source: Company Reports)

New Zealand Steel and Pacific reported an underlying EBIT of $ 2.6 million compared to $ 30.6 million in the previous year as a result of lower prices as well as volumes for iron sands though this was partly offset by an improvement in the product mix. Building Products ASEAN, North America and India reported an underlying EBIT of $ 47.8 million which was $ 3.1 million less than the figure for the previous year. Improvements in India and Indonesia were counterbalanced by softer results in North America, Thailand, Malaysia and Vietnam. Global Building Solutions reported an underlying EBIT of $ 19.3 million down $ 1.2 million over the previous year because the strong performance in North American Buildings and Coated China were more than offset by the weakness in the Chinese engineered building market. Finally, Hot Rolled North America underlying EBIT of $ 67.1 million was $ 18.4 million more than the previous year as dispatches continued to be 100% of production, margins remained strong and the business reaped the benefits of favourable foreign exchange rates.


Global Manufacturing Footprint (Source: Company Reports)

Cash flow generation from operations was strong and growing 30% to $ 341 million compared to the previous year though there was an increase in financing costs to $ 36.1 million compared to $ 31.9 million in the previous year because of the higher average debt levels as well as the increased costs of the debt. The low level of gearing was maintained and the liquidity position remained comfortable.
 


Balance Sheet (Source: Company Reports)

BSL expects the underlying EBIT for the second half of FY 2015 to grow by up to 20% more than the figure for the second half of the previous year. Ongoing business will continue to grow and the company will continue to benefit from a falling AUD/USD exchange rate but some margin compression can be expected as a result of the recent declines in global steel prices. The figures for the half year for financing costs, tax rates and profits attributable to outside equity holders are expected to be in line with the figures reported for the first half of FY 2015. Naturally, these numbers will depend on conditions in the market, foreign currency rate movements as well as the spread which will become available.


Recent Moves in Steel Price, Commodity Prices and A$ (Source: Company Reports)

The Australian business is expected to benefit from the continued residential building activity, the continuing contribution from acquisitions and the falling AUD. However, the recent drop in prices in the Asian and US spot steel markets could squeeze margins. Business in New Zealand will continue to benefit from higher volumes and favourable foreign exchange rate movements though this could be offset by lower prices for HRC and iron ore. Building products businesses in the US and South-East Asia as well as China will continue to grow though margins will be under pressure. The engineered buildings business should be better than the previous year in the US but conditions will continue to be tough in China.


China – Net Exports of Finished Steel (Source: Company Reports)

The current price approximately is still good value in our opinion and there is scope for price appreciation. It is true that recent headwinds have been stronger for steel producers in the Asia-Pacific than we had earlier expected but the company's growth prospects and profitability continue to be promising especially in view of the strong balance sheet and the healthy cash flows generated from operations. We think that the current price undervalues the share and that there could be an appreciation in the share price. The present low steel spreads are cyclical and may have little downside risk given some bit of offsetting by foreign exchange. The market expects fractional recovery in USD steel spread in FY16 to mid-way which could be between the current US$220/t and five year average $280/t. It is to be noted that spreads seem to have reached the bottom and are expected to rebound. For instance, the recent near-term rebound in steel spreads is noted from price weakness in raw material (input cost weakness).


BSL Daily Chart (Source - Thomson Reuters)

We therefore put a BUY recommendation for this stock at the current price of $3.72.