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BlueScope Steel Ltd (ASX: BSL) is a flat product steel producer. BlueScope was de-merged from BHP Billiton on 22 July 2002 as BHP Steel was renamed BlueScope Steel on 17 November 2003. BlueScope has a moderate global presence with more than 100 facilities in 18 countries, employing around 14,000 people serving thousands of customers. BlueScope has a market capitalisation of around $7 billion.
What are the key features of BlueScope HY20 report?
BlueScope’s underlying net profit after tax (NPAT) for HY20 is $199.6 million, down 67% from HY19 (HY19: $613.5 million). BlueScope’s sales revenue from continuing operations for HY20 is $5,861.0 million, down 8% from HY19 (HY19: $6,398.1 million). BlueScope will pay an interim ordinary dividend of 6 cents per share, in line with HY19. Underlying earnings per share for HY20 is 39.0 cents per share, down 66% from HY19 (HY19: 113.3 cents per share).
What are the drivers of this result?
The key driver of NPAT being down 67% is due to weaker commodity steel spreads and higher raw material costs. BlueScope’s business operations are as follows:
North Star:
North Star delivered an underlying Earnings before interest and taxes (EBIT) of $114.5 million, down 72% from HY19. North Star operated at full capacity with stable demand throughout the half year. However, weak steel spreads impacted profitability.
Australian Steel Products:
Australian Steel Products delivered an underlying EBIT of $127.9 million, down 60% from HY19. This is mainly attributed to weaker regional steel prices and higher raw materials.
Building Products Asia and North America:
Building Products Asia and North America underlying EBIT is $80.2 million, up 2% from HY19. BlueScope’s performance in ASEAN improved through the half year driven by better margins and continued benefits from cost reduction and manufacturing improvement. However, North American operations saw a softer result due to falling steel prices combined with a weaker manufacturing performance.
New Zealand and Pacific Steal:
New Zealand and Pacific Steal underlying EBIT is $12.9 million down 82% from HY19. This result is due to lower regional steel prices, lower vanadium by-product contribution and higher raw material and electricity costs. Additionally, infrastructure market demand weakened, resulting in weaker demand for steal in the region.
Buildings North America:
Buildings North America underlying EBIT is $24.4 million, up 10% from HY19. This positive result was driven by stronger margins and an improved contribution from BlueScope Properties Group. Customer demand is remaining strong in the region.
What is the outlook for BlueScope?
BlueScope’s management notes that in the second half of the year EBIT is expected to be similar to HY20 of $302.4 million. A major uncertainty for BlueScope is the Coronavirus outbreak in China. BlueScope has 4 operating sites in China. All sites have re-opened expect the Hubei sales office. Hubei sales office will reopen following local authority direction. BlueScope expects through February and March the performance of Chinese business will be heavily impacted. Beyond this, rate of recovery in demand and activities remains unclear in the short to medium-term.
What is the market reaction?
The market reaction to BlueScope’s HY20 result is negative. BlueScope is down 5% and is currently trading at A$12.92. BlueScope has a forward P/E ratio in the low-teens and an annual dividend yield of around 1%.
Disclaimer:
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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