Steel & Tube shows its mettle
Steel & Tube says it is optimistic about second-half earnings growth, with revenues from all three of its business units appearing to have bottomed out. However, it warned that timing issues could sour the outlook.
The Wellington firm yesterday reported a net profit of $7.3 million for the six months till December 31, up 14 per cent on the previous half-year.
It is a profit level that chief executive Dave Taylor is confident the firm will beat in the second half of the year, particularly as construction in Christchurch and Auckland feeds into demand for steel products from builders and the manufacturing sector.
Likewise, demand from farms is also seen rising, albeit modestly, with meat and wool prices sitting below last year's highs and dairy farmers cautious about spending, given depressed payout forecasts from Fonterra.
Shares in Steel & Tube rose 4.3 per cent yesterday to $2.65, having gained 20 per cent in the last year.
However, Taylor remains cautious about the outlook, saying while the rebuild will drive revenue in the near future, timing issues could still be a factor.
A significant lift in building consents, for example, suggested construction activity was rising, but Taylor said Steel & Tube would see the bottom-line benefits only when projects actually started.
He said many market players had incorrectly guessed the timing of the rebuild several times already, but with consents starting to lift the predictions were starting to align. Even so, he was confident operational changes under way at the firm would continue to boost margins.
Steel & Tube's strategy to consolidate its businesses into a single regional footprint and the introduction of a new supply chain saw it trim its cost of sales $5.9m to $156.7m. That helped offset the 1.6 per cent fall in revenue to $199.6m, with higher margins sapped by lower demand in the September quarter.
The other timing factor hanging over the firm was rising commodity prices, with iron ore having recovered from December lows of $85 a tonne to recently trade at $150.
Taylor said he expected prices to continue rising, which global steel suppliers would be forced to pass to customers at some stage.
"It's just a question of when those pressures will start to be felt in the New Zealand market," he said. "I suspect sooner rather than later."
A fully imputed divided of 6.5 cents per share was declared, payable on March 28, with non-resident shareholders due a 1.15c-a-share payment.