BlueScope Steel Limited

BSL Details

BlueScope Steel Limited (ASX: BSL) has a headquarter in Australia and operations spread across North America, Australia, New Zealand, Pacific Islands and in Asian countries. Its offerings include steel materials, products, systems and technologies. The company has a market capitalization of ~$11.63 billion as on 12^th May 2021.

Results Performance (First Half Year Ended 31 December 2020 – H1FY21)

For the first half-year ended 31 December 2020, the revenue stood at $5,817.4 million, a fall of 1% YoY on the pcp, led by lower global steel prices along with the negative impact of a stronger Australian Dollar exchange rate (A$:US$) as well as fall in global steel prices which was largely offset by the benefit of the rise in volumes from robust demand. Further, underlying EBIT was reported at $530.6 million, up 75% YoY on the pcp on the back of significant steel spreads mainly due to a fall in raw material costs, higher volumes and favourable movement in conversion costs. Finally, underlying NPAT jumped 67% YoY to $332.8 million and reported NPAT grew 78% YoY to $330.3 million, driven by higher underlying EBIT.

Statement of Financial Performance (Source: Company Reports)

Key Risks:

The company is exposed to economic risk and short-term volatility in commodity prices that can impact the financial performance. It is also exposed to slower demand for its products, a fall in global commodity steel prices in comparison with raw material costs, and volatile exchange rate movements, particularly a stronger Australian dollar relative to the US dollar.

Outlook:

The company’s business has grown from strength to strength wherein it has benefitted from strong spreads, prices and demand. HRC steel prices have risen significantly in the USA and Australian steel products are also benefitting from improved realized domestic and export steel spreads. In addition to this, the expansion projects in North America and Australia remain on track. Further, the building product segment is expected to do well due to expanding margin in North America. Asian business is also expected to do better owing to higher-than-expected steel prices positively impacting realized margins.

In the meanwhile, the management has upwardly revised its guidance on underlying EBIT for H2FY21 which is now expected to be in the range of $1.0 billion-$1.08 billion from earlier guidance of $750 million-$830 million.

Valuation Methodology: EV/Sales Based Relative Valuation

(Illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has given a softer close at $22.65 for the ongoing week but with a ‘Shooting Star’ formed on the chart which is towards confirmation of potential bearish reversal. The technical indicator RSI with a reading around 79 and a flattish curve at the end, suggests the softening of bullish momentum while the stock is in a highly overbought zone.

Going forward, the stock may have resistance around the previous high of $24.08 whereas support could be around the 23.6% retracement level of $20.28.

Stock Recommendation:

The stock rose by ~29.9% in 3 months and by ~37.2% in 6 months. The stock has made a 52-week low and high of $9.670 and $23.990, respectively and is trading towards the 52-week higher levels. Therefore, it can be said that most of the positive facts have been factored in the current stock price.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a fall of high single-digit (in % terms). We believe applied a slight discount to EV/Sales Multiple (NTM)  (Peer Average) considering the volatility in steel prices globally and fluctuation in forex, particularly AUD to USD.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of $22.570 per share, down by 2.25% on 12^th May 2021. 

Note: 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 Valuation has been achieved and subject to the factors discussed above.

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