Worst is behind steel company Severfield-Rowen, say analysts

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A GLOBAL investment bank yesterday predicted that the “worst is behind” structural steel firm Severfield-Rowen, after the company said it was well-placed to benefit from any construction market recovery.

Thirsk-based Severfield Rowen said the group’s trading performance for the year to date remained in line with management expectations, as it provided an update for investors.

In June, Severfield-Rowen said it had experienced “probably the most challenging period in the group’s history”.

A rights issue, which was completed successfully in April, raised £44.8m of new funds.

Severfield was forced to seek emergency funds after uncovering heavy losses on contracts, including the Cheesegrater skyscraper in London. Yesterday, the group said its borrowings were also in line with expectations, following the completion of the rights issue.

In a statement, the company said: “The UK order book of £178m is slightly lower than that previously reported, but it remains at a level that management is comfortable with, given the current state of the UK market, the capacity reductions being implemented within the business, and the group’s more selective approach to securing work.

“There are early signs that the market may be marginally improving into 2014.”

The company said its primary focus in India continued to be on the commercial development of the business, and conversion of the market from concrete to steel.

While progress is encouraging, the order book of £34.8m is not yet sufficient to maintain production at a break-even level, the company said.

The factory expansion is almost complete, and the increased capability will play an important role in the business development process, the statement add- ed.

Commenting on the outlook, the company said: “While short-term challenges remain, the group is making encouraging progress with its operational improvements, supported by a strong balance sheet, and is maintaining its market position.

“Management is confident that the group is progressing in line with its expectations and will be well placed to benefit from any recovery in the UK construction market.”

In an analysts’ note. Jefferies said: “The self-help benefits in the UK are coming through as expected (for Severfield-Rowen).

“Order books in the UK and India are reasonably robust and pricing is stable.

“We believe that the worst is behind Severfield, and the outlook statement is very much ‘in line’.

“As a result, we expect very little change to consensus forecasts, post this update.”