New contracts should boost earnings

but Steel & Tube is predicting surge in second-half trading. Pictured; construction on the old...
but Steel & Tube is predicting surge in second-half trading. Pictured; construction on the old site of Bodyline Collision Panel and Paint in Wharf St, Dunedin. Photo: Peter McIntosh.
A decline in non-residential construction undercut Steel & Tube’s half-year profit by 33%, but large new contracts during second-half trading should see earnings buoyed.

Revenue for the steel supplier was down 4% to $254 million for the six months to December, while after-tax profit plunged 33% to $10.5 million. However, Steel & Tube chief executive Dave Taylor said the profit for the half was  as expected, given it was against a background of volatile global steel prices and an intensely competitive domestic trading landscape.

"Even though residential construction activity improved, non-residential construction by floor area dropped by 20% during the year ending December 2016," he said.

That contributed to domestic steel volumes remaining some 13% to 15% below the peaks experienced in 2004-05, he said.

Craigs Investment Partners broker Peter McIntyre said Steel & Tube had during the previous year reduced its earnings guidance, citing increasing  competition  affecting profit margins.

"This suggests that competitive activity is continuing to bite," he said.

Mr McIntyre said Steel & Tube’s prediction of stronger trading in the second half was in line with Craigs’ forecasts, which implied second-half after-tax profit would rise from the first-half’s $10.6 million to $12 million.

Steel & Tube’s decision to maintain its dividend meant its net debt had increased more than 20%, from $95.6 million last financial year to $114.8 million, but underlying cash flow had improved "significantly", up 50% to $14 million, and with  most  cash flow yet to come in the second half, he said.

Mr Taylor said recent acquisitions S&T Stainless and MSL were performing well. The S&T Plastics division had prepared plant for several new contracts worth more than $27 million this year; which had  affected  profitability by $1.2 million after tax.

Two strong trading months followed the company’s October acquisition of Composite Floor Decks Ltd. 

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