Low steel prices drag on Steel & Tube's earnings

Steel & Tube Holdings [NZX: STU] lifted first-half profit 47%, although without income from property sales, their earnings fell as the price of steel continued to decline, fuelling intense competition.

Net profit rose to $15.9 million, or 17.8c per share, from $10.8 million, or 12.4c, in the six months ended December, but that included a $6 million gain from the sale of its former processing facility on Bowden Road in Auckland's Mt Wellington.

Underlying profit was $9.9 million, down 8.3% on 2014, on a 2.9% rise in revenue to $265.7 million.

"While we remain in a challenging global steel environment, there are indications the drop in steel prices may be slowing," says chief executive Dave Taylor.

"When coupled with a reasonably robust domestic economy, I'm optimistic that we'll see a stronger performance from the business in the second half of the year, such that the underlying performance will be comparable with 2015."

Mr Taylor says global steel prices have reached lows not seen since 2003, which has created an intensely competitive domestic steel market.

Along with upgrading its processing facility, the steel products maker has been on an acquisition drive in recent times, buying Aquaduct NZ out of receivership for about $8 million cash in August last year, a month after it agreed to acquire fastener maker Manufacturing Suppliers for $32 million in cash and scrip. It also acquired Tata Steel (Australasia) for $28.1 million, renaming it S&T Stainless, in April 2014.

Manufacturing Suppliers contributed $15.9 million in revenue and $1.8 million in profit between August 3 2015, when it was consolidated, and December. Had it been consolidated from July 31, it would have contributed another $3.1 million in revenue, and taken net profit after tax to $16.2 million.

Aquaduct contributed revenue of $300,000, and nothing in profit, between September and December.

The board declared a 9c per share dividend, payable on March 31.

The shares last traded at $2.03, and have fallen 9.4% this year. The stock is rated an average “hold” by four analyst recommendations compiled by Reuters, with a median target price of $2.53.

(BusinessDesk)