BlueScope shares up on growth prospects

‘(There was) optimism that BlueScope may be through the worst of its woes.’SHARES in BlueScope Steel have surged in the wake of bullish broker comment based on an investor briefing this week that outlined the growth prospects for the company’s prefabricated steel-building unit.
Nanjing Night Net

BlueScope told analysts on Wednesday it was targeting annual revenue from the division of $3 billion by fiscal 2015 – double the revenue the division posted in fiscal 2012.

At the same time BlueScope plans to nearly treble margins of the division to 5.5 per cent before tax and interest charges.

The briefing helped to consolidate investor optimism that BlueScope may be through the worst of its woes, notwithstanding its soft December half performance, which will see the group post a small loss.

The restyled global building solutions unit lost money in fiscal 2010 and 2011 due largely to a collapse in US orders following the global financial crisis. It returned to profit in fiscal 2012, boasting a margin of just 2 per cent.

The division’s peak revenue was $2 billion in fiscal 2009 before the impact of the global financial crisis hit US sales hard in particular, a hit that could not be offset by growth in Asia and China.

BlueScope gained its first exposure to the sector in 2004 when it paid $340 million for Butler Manufacturing in the US, which it followed up in early 2008 with the $850 million purchase of IMSA, just before the collapse of US demand.

Credit Suisse told its clients the division had 20¢ a share of hidden value, which provided a ”key near-term and sustainable growth opportunity”.

”The market ascribes no value to this growth profile,” it said.

A 5.5 per cent EBIT [earnings before interest and tax] margin on $3 billion of revenues would equate to $165 million EBIT, it said. This would equal the broker’s EBIT profit forecast for fiscal 2013 alone.

Deutsche Bank also told its clients of the ”significant upside potential” of the unit. BlueScope closed up 5¢ at 50¢, off the day’s high of 51.5¢.

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