Severfield shares are looking far too cheap

Severfield is looking undervalued with its shares on a far too cautious rating, writes Mark Watson-Mitchell.

In just nine market dealing days Severfield (LON:SFR) will announce its final results for the year to end-March 2021.

In a year that saw the group battered by the impact of Covid-19 it actually traded rather well.

Better than expected

At the end of April, the group declared a trading update for that year, indicating that its performance had been better than expected.

We shall see how it fared when its figures come out on Wednesday 16 June.

Steeling itself for business

As a structural steelwork company, it is engaged in the design, manufacturing, fabrication, construction, and erection of steelwork activities in the UK, Ireland and Europe. 

It manufactures metal decking products; composite metal flooring products; and steel and plated beams, steel sections, steelwork products, and intumescent coatings. 

The company also provides stair and steelwork products; specialist design and engineering services; and tubular construction and plate girders, as well as delivering constructional steel products. 

In addition, it offers design and build steelwork contracting services for distribution warehouses and low-rise structures. 

Varied sector customers

The company provides its services for various projects, such as industrial and distribution, health and education, commercial offices, power and energy, stadia and leisure, retail, transport, and data centres and others, as well as infrastructure, including bridges. 

From its six operating sites – Thirsk, Malton, Enniskillen, Bridlington and two in Bolton – it serves contractors, developers, engineers, and architects. 

You know its work

I am fairly sure that we all have seen examples of its work on essential infrastructure such as airports, bridges and warehouses, right through to Olympic stadia and high-rise, mixed-use developments like the Shard.

The group also has a joint venture partnership with India’s largest steel producer, JSW Steel, which is said to be faring well despite India’s own virus hassles.

Resilient performance in 2020

Estimates for the last year suggest that the group’s revenues rose some £30m to £360m, while its pre-tax profits fell by about £5m to £24m. Earnings may have eased to 6.3p per share (7.7p) but still cover the maintained 2.9p dividend.

Current year going well

This year, it appears, has already got off to a good start, with its order book standing at a healthy £315m, which has crept up from the November 2020 level of £287m.

Going forward, analysts are expecting a small increase in sales revenues in the next two years at around £370m, while pre-tax profits could increase to £28m this year to end-March 2022, then up to £31m in 2023, taking earnings up to 7.4p then 8.2p per share respectively.

Good professional holders

There are 308.2m shares in issue. 

Larger holders include M&G Investment Management (10.99%), JO Hambro Capital Management (9.88%), Threadneedle Asset Management (7.57%), Legal & General Investment Management (5.46%), Invesco Asset Management (5.45%), Unicorn Asset Management (5.19%), Chelverton Asset Management (5.03%), Polar Capital (3.87%), Standard Life Investments (3.18%) and Rowan Dartington (Broker) (1.81%).

A long-term follower

I have been following this company for decades and consider it to be an important piece of the UK construction sector. 

Its shares peaked at 306p way back in 2007 before the financial crisis hit business generally, a bit like Covid-19. They fell back to around the 73p level by 2009, then halved to 35p in 2013.

In the last year they have been as low as 51p before rising to the current 79p, at which level I reckon that they are ready to react to good news – could that be coming on 16 June? 

My View

The results out in less than two weeks should make interesting reading. 

In conclusion I am now fixing a new target price for the shares at 100p.

(Profile 12.09.19 @ 62p set a Target Price of 88p*)

Elsewhere…

Braemar Shipping Services (LON:BMS) – broker ups its price objective from 281p to 444p

Yesterday’s results announcement from this shipbroking group indicated a significant strength in its year to end-February.

And what is more, it appears that the improving global trade climate is continuing to build in this current year.

Broker’s analysts Guy Hewett and Michael Clifton at finnCap are impressed by the group’s focus on its broking side coupled with its recent restructuring and reduction of its debt following disposals.

They go for £122.4m of revenues and £11.3m of adjusted pre-tax profits, worth 24.1p per share in earnings, with a 5.7p dividend.

On the basis of valuing the group at 17 times those estimates, that would underline their new price objective of 444p (281p) for its shares, which is still a 33% discount to that of its larger, long-standing peer Clarkson.

The shares close the week at around 250p, but are obviously heading higher, in my view.

(Profile 05.12.19 @ 185p set a Target Price of 250p*)

(Profile 20.05.20 @ 99p set a Target Price of 150p*)

Brickability Group (LON:BRCK) – what an excellent deal

Wednesday’s announcement that this ‘buy to build’ group is paying £63m for the Taylor Maxwell Group was a major step forward in the group’s acquisition programme.

Taylor Maxwell is one of the UK’s leading suppliers of timber and non-combustible cladding for the construction industry.

To fund the deal the group issued nearly 58m new shares at 95p each by way of a placing, while its also sold 40m new shares by way of a secondary placing.

A great deal in one swipe and taking advantage of a firm share price to fund its way ahead.

The shares, at 102p, look to me to be great value – heading for 125p soon methinks.

(Profile 16.04.20 @ 39p set a Target Price of 55p*)

Bloomsbury Publishing (LON:BMY) – buy and build

Boss Nigel Newton is playing a set of fine cards presently.

I first met Nigel way back in the mid-1990s when he floated his publishing group. I even enjoyed a bottle or two of Newton’s Vineyard Cabernet Sauvignon wine, from the Napa Valley in California. 

But I digress.

Top authors within his coterie include Sarah J. Maas and Harry Potter’s J.K. Rowling – the latter has been an incredible boost to the group’s fortunes over the last couple of decades.

But the group is concentrating upon building up its digital offerings and is gently snapping up smaller publishing companies to fit into its growing library.

This week it has just paid £7.35m for Head of Zeus, whose names include Dan Jones, Cixin Liu, Elodie Harper and Victoria Hislop.

A few weeks ago, it paid Macmillan Education £3.7m for its Red Globe Press

Newton stated that his group’s 31% profit surge to £17.3m was a result as people discovered reading again during the pandemic’s lockdowns. He said that “The popularity of reading has been a ray of sunshine in an otherwise very dark year.”

I have a lot of time for the way Newton does his business and was obviously pleased to see his group’s shares put on 40p on this week’s results and acquisition news closing the week at around the 342p level, after hitting 366p.

Bloomsbury is an excellent story in itself and its shares are going higher.

(Profile 28.02.19 @ 231p set a Target Price of 257p*)

(Profile 27.03.19 @ 238p set a Target Price of 270p*)

RBG Holdings (LON:RBGP) – 160p a share price value

Following the recent acquisition of the Memery Crystal legal services, the group’s brokers have upped their current year revenue and profit forecasts for Nicola Foulston’s expanding law outfit.

Estimates by N+1 Singer’s analyst James Bayliss suggest that revenues to end-December 2021 will be £45.5m (£5.6m) and that adjusted pre-tax profits will be around £9.1m (£5.8m), worth 7.9p in earnings and 4.75p dividend per share.

For next year Bayliss goes for £56.2m of revenues and £13.0m profits, worth 11p in earnings and covering a 6.58p per share dividend.

He considers that the shares at 135p are trading 25p lower than the stock’s intrinsic value of 160p per share.

Hold very tight. The group’s AGM is due on Thursday 17 June so more to be told, I hope.

(Profile 05.02.21 @ 80p set a Target Price of 100p*)

 (Asterisk* denotes that Target Prices have been achieved since profile publication)

Profile company results, meetings and updates expected within the next two weeks: