BlueScope Steel Limited

BSL Details

BlueScope Steel Limited (ASX: BSL) is one of the major manufacturers of painted and coated steel products globally.

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

• The company has delivered a record underlying EBIT of $1.72 billion in FY21, tripled that of FY20.
• All the operating segments delivered exceptionally well performance supported by strong demand and steel spreads.
• Resultantly, it reported an increase in its net profit after tax (NPAT) to $1.19 billion in FY21, up by $1.10 billion over FY20.
• The company has declared a final unfranked dividend of 25 cents per share, an increase from 8 cents in the PCP. Further, it has announced a special unfranked dividend of 19 cents per share and an on-market buy-back of up to $500 million.

Recent Update

• As per the press release dated 5 November 2021, the company entered a binding agreement to acquire the ferrous scrap steel recycling business of MetalX LLC. BSL would be paying USD240 Mn to acquire 2 of MetalX’s operating sites that are located in Indiana as well as in Ohio, immediately adjacent to the North Star facility in Delta.
• As per the press release dated 29 October 2021, BlueScope and Rio Tinto have decided to join forces in order to explore the options for the low-emissions steelmaking at Port Kembla Steelworks in New South Wales.

Source: Company Reports, Analysis by Kalkine Group

Key Risks

The company is exposed to the risk of a deep or prolonged economic downturn that could affect global steel industry. It is also susceptible to the risk of declines in the price of steel, or any significant and sustained increase in the price of raw materials and no corresponding increase in steel price.

Outlook

The company, on 21 October 2021, has raised its underlying earnings before interest and tax (EBIT) guidance for H1FY22 to between $2.1 billion to $2.3 billion against its earlier guidance range of $1.8 billion to $2.0 billion. Besides, the balance sheet position remained strong with net cash of $798 million.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

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 as well as improved guidance.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of A$20.540 per share (Time: 11:26 AM (GMT +10), Sydney, Australia) on 8^th November 2021.

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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