BlueScope Steel Limited
BSL Details
BlueScope Steel Limited (ASX: BSL) is one of the significant manufacturers of painted and coated steel products globally. With rich expertise in steel, the company delivers vital components for houses, buildings, structures, automotive, among others. It has a robust global network with over 160 operations and sales offices across 18 countries.
Result Performance for the Year Ended 30 June 2021 – FY21
- The underlying EBIT stood at $1.72 billion in FY21, tripled from FY20, mainly due to solid performance from operating segments supported by robust demand and steel spreads.
- After capital expenditure, the operating cash flow stood at $898 million in FY21, including investment expenditure on the North Star expansion.
- The company has declared a final unfranked dividend of 25 cents per share, increasing from 8 cents in the PCP.
- It announced a special unfranked dividend of 19 cents per share and an on-market buy-back of up to $500 million.
Source: Company Reports, Analysis by Kalkine Group
Key Update:
On 18 November 2021, the company advised that shareholders pass all resolutions proposed at the 2021 Annual General Meeting on a poll.
Outlook
On 21 October 2021, the company has raised its underlying EBIT guidance for H1FY22 to $2.1-$2.3 billion against its earlier guidance range of $1.8-$2.0 billion, primarily driven by solid spreads, prices, and demand. Besides, the balance sheet position remained strong, with net cash of $798 million as of 30 June 2021. Its balance sheet strength and cash flows will support the company in fast tacking its strategic growth plans. This will be led by targeted investment for the long-term growth and resilience of the group and place the business for a low carbon future supported by a five-year climate investment program of up to $150 million.
Key Risks
The company is exposed to the risk of a deep or prolonged economic downturn that would affect demand for the group’s products and financial prospects. It is also susceptible to the risk of declines in steel price or any significant and sustained increase in the price of raw materials and no corresponding increase in steel price. Additionally, fluctuation in foreign exchange rates, mainly the Australian dollar relative to the US dollar, and higher competition are other potential risks.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Technical Overview
Daily Price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Stock Recommendation
The company has delivered a 6-month and 1-year return of ~-3.47% and ~+18.46%, respectively. In addition, the stock is trading below the average of the 52-week high price of $25.941 and the 52-week low price of $15.654.
The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering its healthy performance in FY21, improved earnings guidance, robust demand environment, and healthy liquidity position.
Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $20.04 per share as of 29th November 2021 (Time: 1:45 PM (GMT+10), Sydney, Australia).
Wagners Holding Company Limited
WGN Details
Wagners Holding Company Limited (ASX: WGN) is a diversified Australian construction materials and services provider, producing New Generation Building Materials, including heavy construction materials on the environment.
Result Performance for the Year Ended 30 June 2021 – FY21
- The revenue stood at $320.7 million in FY21, up 28.4% YoY primarily led by an increase in precast, concrete, transport and contract crushing.
- The EBIT stood at $25.4 million in FY21, up $16.8 million YoY, led by a 44% rise in bulk haulage revenue and a 36% rise in contract crushing revenue due to activity in the resource sector.
- In addition, the management elected not to declare a final dividend to accelerate investment in the company’s composites and low carbon concrete technology businesses.
Source: Company Reports, Analysis by Kalkine Group
Key Update:
On 18 November 2021, the company stated that it had secured a new contract for haulage services with McArthur River Mining Pty Ltd (MRM) to generate revenue of ~$33 million. Up to 3 million tonnes of materials will be loaded and hauled between the mine sites.
Outlook
The company reported performance in FY21 across most business areas, which is expected to continue in FY22, mainly construction materials and services business. However, COVID-19 circumstances continue to play a vital role in the demand for the product and timing of projects. Moreover, the company is looking for global expansion and establishing international manufacturing facilities for CFT and EFC businesses which will deliver robust growth in the long term. To accelerate the pace of development, substantial investment is required in FY22. Also, in FY22, the investment will be focused on technology development and business development to meet market demand. The establishment of UK manufacturing and distribution facility will be completed during FY22.
Key Risks
Reduced demand for the company’s products and services due to delays in current capital investments and construction activity could materially and adversely impact revenue, profitability, and growth. Failure to continuously comply with regulatory requirements could result in enforcement actions such as shutdowns of, or restrictions on, manufacturing operations, delay in the approval of products, refusal. Disruption in local and international supply contracts could cause product delays and potential loss of profitability.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Technical Overview
Daily Price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Stock Recommendation
The company has delivered a 6-month and 1-year return of ~-30.38% and ~-1.79%, respectively. In addition, the stock is trading below the average of the 52-week high price of $2.56 and the 52-week low price of $1.57.
The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight discount has been applied to peer average EV/Sales multiple (NTM basis), considering a fall in fixed asset turnover at 1.36x in FY21 versus 1.39x in FY20 and higher debt to equity in FY21 versus industry median.
Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $1.60 per share as of 29th November 2021 (Time: 12:44 PM (GMT+10), Sydney, Australia).
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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