A tough macro-economic environment made for one of the toughest years ever for Steel and Tube Holdings over 2009-10, but the company did well to get costs out of the business, analysts say.Steel and Tube's underlying profit was $9.9 million – down 6
A tough macro-economic environment made for one of the toughest years ever for Steel and Tube Holdings over 2009-10, but the company did well to get costs out of the business, analysts say.
Steel and Tube’s underlying profit was $9.9 million – down 62% compared with the previous year – but in line with market expectations.
Market conditions for the year continued to deteriorate, with many sectors still deeply affected by the impact of the global economic crisis, the company said.
“It’s a very tough environment for them,” Goldman Sachs JB Were analyst Matt Henry said. “Volumes are soft and prices are down,” he said.
“The macro environment in which they are operating is pretty challenging, but they have done a decent job in managing costs,” Mr Henry said.
Steel and Tube’s operating costs fell 18%, year-on-year.
Forsyth Barr’s head of research Rob Mercer said Steel and Tube’s 5c a share final dividend was lower than he had expected but that the payout should pick up sharply once earnings recover.
Mr Mercer said the company enjoyed a strong balance sheet and its net interest costs fell by $4.3 million to just $1.7 million over the year.
“These benefits from lower debt levels and interest rates will reverse as earnings recover and working capital increases again, but in the near-term the low cost of funding provides a nice offset,” Mr Mercer said in a research note.
Forsyth Barr expected steel volumes to remain under pressure over the next 12 months, after which there would be a strong lift in both volumes and steel prices generally.
In the background is Australia’s OneSteel, which owns 50.1%, and which had a go at taking over the company with an offer of $4.00 a share in 2008. OneSteel later withdrew its interest, due to market uncertainty.
Forsyth Barr placed a relatively low probability of a takeover bid being forthcoming in the near-term.
Steel and Tube’s share price traded at $2.17 after the result, down 5c from Wednesday’s closing level, in a market that was weaker overall.
