BlueScope expects substantial first half earnings beat

Published at Jan 24, 2017, in Features

BlueScope Steel (ASX: BSL) announced on Tuesday morning that preliminary unaudited underlying earnings before interest and tax for the six months to December 31, 2016 were expected to be in the vicinity of $600 million, significantly higher than AGM guidance of ‘at least $510 million’.

The group put down the improved performance since November to a number of factors. Stronger steel prices and spreads across its businesses, which particularly benefited the Australian Steel Products and New Zealand and Pacific Steel operations were key drivers.

BlueScope also benefited from stronger than expected iron ore prices which improved profitability in its iron sands export business.

The company continues to achieve cost reductions from productivity improvements across all of its businesses, including North Star BlueScope Steel.

The North American building products division, as well as the Indian business both performed well with the latter seeing positive earnings growth with higher margins and volumes.

While the company has flagged a substantial outperformance compared with guidance, Citi was expecting a reasonable beat. The broker reviewed the stock less than two weeks ago, pointing to underlying earnings before interest and tax of $548 million.

At that stage Citi lifted its target price from $11.03 to $12.75, stating that BlueScope was one of the cheapest quality global steel stocks given global peers are trading at a substantially higher median of 7.5 times EV/EBITDA based on the next 12 months earnings.

If BlueScope pushes up towards Citi’s price target it would imply a premium of 23% to Monday’s closing price of $10.38.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

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