BSL Details

Strong first half results: BlueScope Steel Ltd (ASX: BSL) delivered a solid net profit after tax (NPAT) of a $359.1 million in first half of FY17 while underlying NPAT surged 203% year on year (yoy) to $360.0 million. Underlying EBIT rallied 162% yoy to $603.6 million driven by better productivity, cost improvements, better steel spreads and North Star acquisition contribution. Free cash flow was $900.5 million during the year ended at 31 December 2016 while the group controlled net debt by $842.1 million to $531.3 million as compared to prior year. BSL paid a fully franked interim dividend of 4.0 cents per share and the group also announced an on-market share buy-back of up to $150 million.
 

BSL Financial Highlights (Source: Company Reports)
 
Segments’ performance highlights: Australian Steel Products underlying EBIT rose to $242.5 million driven by higher spread, lower costs and higher domestic sales volume. North Star BlueScope Steel underlying EBIT rose $168.9M to $211.3M during the first half of FY17. Building Products segment underlying EBIT surged $45.9M to $111.3M supported by better margins and sales volumes while North America and India businesses contributed most of the part. BlueScope Buildings underlying EBIT enhanced $15.3M to $49.5M during the period but was impacted by lower costs in North America through cost reductions and higher sales volumes. New Zealand and Pacific Steel underlying EBIT reached $39.5M during the first half given the better steel and iron sands prices.
 
Outlook: For Coated & Painted Products segment, the group would focus on Asia and accordingly their home appliance steels in Thailand with NSSMC partnership is gaining customer acceptance. The group established a Lysaght roll-forming facility in Myanmar while targeting opportunities in India. As per BlueScope Buildings segment, the group expects more performance improvement initiatives in their engineered buildings businesses in both North America and China. China Coated business also has good scope to grow through filling available production capacity. With regards to the North Star performance, underlying EBITDA surged 178% to US$180.2M during first half of FY2017 as compared to 1H FY2016. Overall, BSL expects their second half of FY2017 underlying EBIT to be 50% more than the prior corresponding period while underlying net finance costs is forecasted to be lower than 1H FY2017 on the back of decrease in average net debt.
 
Stock Performance:BSL stock already rallied over 127.65% in the last one year (as of February 20, 2017) and is trading at higher levels. Moreover, for the Australian Steel Products segment, the group forecasted for weak spreads in the third quarter of 2017 due to the lagged impact of higher coal costs. Lower margins in Engineered Buildings Asia remain a concern given the rising competitive pressures and currency fluctuations. Given the scenario and trading levels, we believe investors can book profits in the stock and give a “SELL” recommendation at the current price of $12.90
 

BSL Daily Chart (Source: Thomson Reuters)

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