High profile contracts boost Severfield

Artist's impression of 22 Bishopsgate, London's newest skyscraper

The Thirsk-based group said it is on track to double profits by 2020 after pre-tax profits leaped from £13.2m to £19.8m in the year to March 31.

The firm was recently appointed the steelwork contractor on Britain’s newest city skyscraper, 22 Bishopsgate in the City of London. Analysts said the prestigious contract will be worth up to £50m as Severfield helps to build one of the top three tallest buildings in the City of London.

Acting CEO Alan Dunsmore said: “We are very much on target to double profit by 2020. We set the target last year and it’s been a good first year. This year has gone better than planned.”

The group has started work at 22 Bishopsgate where it is erecting 60 floors of steel, which will use around 16,000 tonnes of steel.

Most of the group’s steel comes from Scunthorpe so it has not seen much of an impact from rising import prices following the fall in the pound post Brexit.

Asked whether the unexpected outcome of the General Election will have an impact, Mr Dunsmore said: “We need a stable economy growing modestly, as it is forecast to do. We don’t see that changing.”

If there is a consumer downturn, Severfield will have little exposure as retail developments make up less than 2 per cent of its order book.

“There haven’t been that many retail developments over the last 10 years,” added Mr Dunsmore.

Looking ahead to the Brexit negotiations, he said: “Everyone is just getting on with it. Everyone is in wait and see mode. The impact will depend on what Brexit actually means. It seems to change week after week.”

Looking ahead, Severfield sees a significant increase in infrastructure projects including Hinkley Point nuclear power station, HS2 and the expansion of Heathrow airport.

“Our bridge team places us in a strong position for the HS2 bridge work and our historical record in transport infrastructure both in railway stations and airports, and Heathrow in particular, enables us to feel confident about the potential for our involvement in these major projects,” said Mr Dunsmore.

“We think the skills, experience and track record we have will stand us in good stead on these projects. They draw upon our core skills - the things we do well and no-one else can do.

“We are in discussions with a number of parties on HS2 and we think we are well placed.”

Analysts welcomed the results.

Greg Poulton at N+1 Singer said: “Though the order book fell back to more normal levels at £229m at 1st June versus £267m reported in March, the end market environment is said to be stable and the group has reiterated its medium term target to double pre-tax profit by 2020.

“Severfield is delivering on its strategy, with a significant margin improvement achieved through both the first and second halves.

“We are forecasting an operating margin of 8.0 per cent and 8.5 per cent in 2018 and 2019 respectively, and see scope for further margin enhancement as operational improvements continue to deliver. With the balance sheet continuing to strengthen, we also see increasing opportunities for special dividends.

“We remain positive on Severfield and retain our ‘buy’ recommendation and 98p target price.”

In March, Severfield said chairman John Dodds would take temporary charge of the group following the ill health of chief executive Ian Lawson.

Mr Lawson has taken a temporary leave of absence due to physical ill health. Mr Dodds has been working alongside with Mr Dunsmore, who has assumed the role of chief executive on a temporary basis. Adam Semple, the group’s financial controller, has temporarily taken on the responsibilities of finance director.

Mr Dunsmore said: “There is no news on Ian’s return. He is out of hospital having been there a while. There is still a long road ahead. We wish him well.”