Also nearly at breakeven following years of downtrend after buying more at .59 in early Sep last year. Hoping some of the FBU bounce will also apply to STU at some point.
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Well people, the way I see it, which is very different from Craig's impressive mumbo jumbo, is that they have averaged a Net Profit of 17.4 million/year over a period of 13 years which includes a once or twice in a lifetime global recession. Now granted with a lot of those earnings they have retained them and destroyed them in spectacular fashion. They also paid out 15 million a year average in dividends and then took back a lot of money in an equity raising, net of which the dividends would have averaged 9 million a year. They at times employed significant leverage to produce these cash flows. The top-line growth over this whole period has been non existent.
So looking forward, which is I believe more difficult that Craig's would have you think - If we take one case and I'm going to call it 'best conservative case' and assume that revenues remain the same going forward, margins remain similar and thus net profit remains the same averaged over time. BUT this time they don't destroy any retained cash, they don't employ it well either, just for every $1 retained only $1 of value is created. Under this scenario we can now try and assume a multiple for this profit.
Now when deciding a multiple, we see that the NZ50 PE according to S&P, is about 45. Yes this will be somewhat because of COVID earnings but regardless it's incredibly high, all time high in fact. People will say 'yes but with the discount rate/bond yields/interest rates so low' and I will think hmmm why are they so low. Mostly because we're in the middle of another massive recession and have had abysmal economic growth really since 2007 aside from what a huge population increase has given us. I digress, but I'm not at all comfortable that we really have conditions that warrant higher than long term average PE's.
So for regular business like Steel and Tube that has kicked it's old habits but still just plodding along... It is a duopoly and now has no debt, so even if it performed as it has in the past, it's now all equity and could be goosed if that made sense in future... Hell I'm not giving it any more than 15. So say 17 million times 15 is around 250 million. There are 166 million shares so that's $1.50.
So in my opinion, anyone that thinks it is worth more than that (and I may be one of them) is speculating, probably on multiple moving balls.
Now I can do a worst case and base that on exact historical performance (it can get worse than that too) and I can do a best case in which I would attribute at least average capital allocation skills, say retained earnings reinvested at 7%, some leverage applied, growth at least in line with population growth. But I'll just stick with my case above and I can tell you I'll probably sell early as a result but I'm totally happy with that as if i don't then I may as well go to the Casino.
This is why I was ranting so hard about it when it was in the 50's. It was massively undervalued.
I see a lot of technical analysis mentions on this thread, I don't know much about it but hasn't it just formed a text book 'cup and handle' from the beginning of 2020?
Okay - thanks for that SailorRob, but many of the punters may wish to see some cash land in their paws
before deciding whether the Nuts Bolts & Steel Biz with more curves, bumps, joins, holes & welds in the past
than Auckland's Water Supply Service is considered sexy enough to encourage them to poke cash STU's way .. ;)
PE is one thing, but Div Yield something better than a big fat 0 is more inspiring in today's times..
SP is basically back to just under a certain point pre covid in the earlier year, back across the C19 dip
so at this point just recovering some lost ground ;)
It defies comprehension how this outfit has managed to suffer so much carnage in Stock writedowns
impairment & provisioning in the recent past.. there really cant be much left standing to impair or write off
on the balance sheet .. ;)
Sailor Rob makes some good points but I feel many don't grasp what he saying.
So I have charted STU's Free Cash Flow over the last 10 years - both annual figures and a cumulative figure from 2011 are shown. Free Cash Flow is Operating Cash Flow less Investment Cash Flows (excluding cash for business acquisitions)
Demonstrates what Rob is essentially saying (I think) in that STU has generated solid cash flows over the years - even through the years of turmoil
Over the 10 years Free Cash Flows have totaled $162m. In the same period they've spent $74m on new businesses and paid $121m in dividends. In addition raised $94m new capital from shareholders.
So I'm on same page as Rob in that the current market cap of $160m odd and based on likely cash generation and likely dividend flows STU is pretty cheap
Has always been the case - nothing new there!
Rising share price = great company & great management.
Falling share price = lousy company & bad management.
BUT - there in lies the opportunities to pick turnaround stocks and make serious gains.
Eg. Diligent at 28c and Serko at 29c! Or FBU at $3.20.
I did similar analysis to you winner, I accounted for every dollar in and out over 13 years from cash flow statements and made sure they roughly compared to earnings. I used earnings in my post above but it was really done on free cash flows over and above what was needed to be reinvested in the business.
To be fair - Synlait is building up a factory (or two or three) while STU is basically a boring old retailer with a habit to burn money in case they have too much of it ...
Amazing how many new four wheel drives they bought for their staff after the Christchurch earthquakes ... though probably time to replace them now, i.e. there might be additional unplanned costs in the wings ...
Apart from that - I agree that both companies do have management teams whose performance at times was wanting and boards which both managed to make significant mistakes to be paid for by shareholders, and I agree as well that STU might have a chance to return their earnings towards their long term average EPS in the years to come ... which would be good for holders. I guess you hope they wrote off enough ... and they probably have currently enough space in their cupboards to store a new set of skeletons before they start to overflow again.
Not really convinced of the quality of board or management, but probably businesswise currently in the right spot.
Discl: Hold a (really) small parcel ...
Looking ahead short term - did someone point to lower turnover ?
To reach therefore higher GP & bottom line - that tends to point to higher margins..
Is that possible in today's times & competitive environment or wishful thinking ?
STU have some good brands & businesses in the fold.
Many initiatives, including co-locating into shared STU premises should have been done
long ago (while Board were apparently dreaming at the helm) and not after or forced
as a result of things hitting the fan badly .. ;)
The proof in performance & how well Directors ultimately pull things together
to regain where they were at a few years back before all the carnage, and better
above those levels will be what watchers will be looking for.
We have already had one false start on recovery tracks - with interim div, then
things abruptly slid backwards the next half with no next Dividend paid.
The current Board & many of the top brass were also onboard through the carnage
of recent years, so they also need to now prove they are up to what is expected of
them in clawing STU back out of the hole and staying there with solid performance
They have already seen wiped out in the watch of many of them - over half the
value STU had in Shareholder Funds, all of the Cap Raise a few years back
which resulted in the forced leaning down to get to the current slimmer beast, so
their credibility is very much on the line & current times suggest there is no
room for repeats or excuses on why they should be capable of delivering up
and substantially keeping STU's performance at or above those enhanced levels .. ;)
The ultimate challenge - Can STU's Board & Top Brass pull things above the $1.75 SP
that was at one point on the table - which they didn't like before it was withdrawn ? ;)
IMO - that is the line in the sand which STU's Board & Management must reach or exceed
and hold to ultimately prove they are worthy of their seats & positions with STU
If not, then new fresh talent required which is more vibrant & capable of performance
execution & delivery without further carnage.
After all, how difficult is it selling reasonable quantities of nut bolts & steel etc at a reasonable
margin and getting it closer to perfection than the beast has managed in the past how many
years it has been in existence ? ;)
Discl: hold a parcel
Some great points, but the board and management should absolutely not be trying to pump the share price back up. Unless they are planning to raise more equity they should be completely agnostic to the share price, or if they are truly smart they should really try to keep it way down.
I want to make money out of my position in STU and a rising share price will make me much less money compared to what I will make if the share price stays low while the business continues to recover.
The best scenario is the share price stays well under intrinsic value for a very long time (20 years would be wonderful). This way I can increase the proportion of the cash flows the business is spitting out that goes into my pocket. I can continue to purchase shares with my own money, with STU dividends (very inefficient), and they can do the same with buybacks (best option). If the share price rises quickly to or above intrinsic valve then I will have to sell and it will just be a one hit wonder and I will have to re allocate capital somewhere else.
No rational investor wants the share price of a good business they own rising above intrinsic value unless for some reason they want to convert an equity stake into money losing cash.
but if it suddenly turned around to be so good with rising SP, intrinsic value should rise, along with dividends (hopefully imputed as well)
and so why would you entertain selling it to pocket the 'money losing cash' ? ;)
I think STU's board need to demonstrate that they've turned a lemon into something worth keeping rather than trading
and they've finally woken up with fingers firmly on the pulse .. ;)
One of my clients *could* be a large customer for STU but never will. Why? STU are too expensive. My client imports 20 tonnes at a time from China, Vietnam and India including flat rolled coil of varying thickness, s/s fixings, square and rectangular hollow sections and all manner of bits and pieces. STU get the emergency orders for low volume items where we don't quite match supply with demand, but that would be less than 1% of the total value spent on steel. It would be good to support local but the cost of buying locally cannot be supported. My fear with companies like STU is "what is the point of difference?" versus buying in bulk offshore? Maybe someone else can answer that but I can't given the quality of the offshore product is good. I'm not sure how much of STU sales is retail versus local manufacturers....or what their strategy is for various market segments but maybe we don't fall into their target market...?
Disclosure: became a holder post-lockdown but sold all in December.
Someone's showing their hand and keen to accumulate...
Yes very good points. Also should mention that I have it on good authority that the Whangarei branch treat customers as if they have completely ruined their day by walking in. I have a friend who took his business elsewhere even though it was more expensive. When you are in a commodity business and you cant even compete with lower prices that is pretty bad.
Bluescope report NZ Steel had a boomer of half year
New Zealand Steel is set to report its best half-year result in two years as it benefits from strong domestic construction and cost-cutting started last year.
Based on the last few years i thought we might of seen a half year update. Or at least a date for when the half year results will be released.
Thanks for that infor, w69.
Expanding further :
https://cdn-api.markitdigital.com/ap...df02a206a39ff4
NZ & Pacific operations improved substantially in H1 2021 - EBIT expected to be in excess of $55m.
Compares with $12.9m in H1 F2020.
Given that STU is Bluescope's major distributor in NZ, augers very well for STU operations.
If the closing trades yesterday (big buyer mopped up over 200,000 shares, including a line of 200k, at 98c) are any guide, someone is very keen indeed to accumulate - and not afraid to pay up.
Modus operandi suggests to me it's Milford who sold out to NZ Steel at $1.75 buying back in - heaps more shares to buy!
Wow $1.04 .. seems like someone has an appetite .. ;)
Not a lot passing across the floor (okay NZX screens) - just a bit over 209K vol
Courtesy of W69 :
Awesome numbers from Stats NZ re December consents.
Note the reference to non residential activity - looking good for STU!
Westpac say:
December was another strong month for consent issuance, capping off what’s turned out to be a massive year.
On the residential side, issuance was up 4.9% in December (prev. +1.2%). Over the past 12 months, 39,420 new dwellings were consented. That’s the highest level since 1974 and even more impressive given the disruptions associated with the lockdowns in the middle of the year.
Much of the strength in issuance has been centred on Auckland, where just under 16,700 new dwellings were consented over the past year (up 10% vs 2019). That’s more than enough to keep up with population growth, and if that pace can be sustained it will erode the shortage of houses in the region. Underlying this strength in Auckland has been a massive lift in the number of medium density dwellings that are being consented (i.e. townhouses), the rate of which has surged higher in recent months.
We’re also seeing solid issuance in Canterbury, while numbers in other parts of the country have remained firm.
Today’s result reinforces our expectations for a significant rise in residential construction over the coming year. That’s being underpinned by the low level of interest rates and strong gains in house prices, which are boosting developers’ confidence. Yesterday’s labour market data signalled that this is already boosting employment in the construction sector.
We’re also seeing firmness on the non-residential side. While not roaring away like residential activity, spending on commercial buildings has retraced its lockdown-related fall and is holding at a solid level. We think that businesses will remain cautious about capex over the coming year. However, investor demand for commercial property has been resilient and the ongoing recovery in the economy is likely to support increases in commercial building activity over the coming year.
https://www.stuff.co.nz/life-style/h...r-1970s-heyday
Bit more colour to the December building consent numbers.
Major issue for the building & construction activity will be availability of resources to meet the construction demand.
So expect the boom to spread out way into 2022 and beyond.
Extremely positive for STU & FBU.
No wonder Milford is back buying into the sector after selling down and out 2 years ago!
Solid upward run keeps continuing...
Happy as, very bullish sector signals emerging, STU should ride the coat tails of (imo) likely revised guidance upwards for construction sector participants. FBU result will be informative.
TBH, it's not really surprising, with the tons of money thrown at the construction sector vis a vis economic recovery, the companies would have to be complete numpties to not be making hay in this market.
Who knows eh, I was into STU in 2012, and out during 2014 with a healthy profit when I became concerned about their execution. Was pretty upset at the time I recall, they seemed to have so much promise. Since then it's been a capital disappointment and long wait until recently. This time I've left it a bit longer getting in to see if they're on board the construction sector boom and feel reasonably confident for the meantime they'll do very well.
My price triggers are a fair way above here, assuming they perform, otherwise a fairly close stop will make the decision for me. Target 50-60% upside from here within 6 months, double that within 12 months, the monthly chart is a better tool for STU imo, smoothes out the noise. Assumes they don't "blow themselves up" again, lol!
And here's FBU's H1 F21 commentary on their steel operations :
"EBIT in the Steel business improved by $17 million compared to the prior period, supported by strong price governance, a focus on profitable sales mix and reductions in labour and property costs."
"In the pipes (Iplex, Humes) and steel businesses, gross revenue was up by 3%. These businesses experienced subdued volumes in the infrastructure and vertical construction markets, whilst civil and subdivision work showed good demand, particularly in the Auckland region."
Again, augers well for STU when they report next week - 26 Feb.
Reinstatement of dividend (however small) will be another positive development for the sp.
As per their recent trading update comments..
• Cash position remains strong with cash of approximately $24m as at the end of November 2020 (up from $7m net cash at 30 June 2020) with zero debt.
Based above and under current ultra low-interest environment, I'm picking dividend reinstatement has a strong possibility (1 to 2 cents may be)..
Don't be too greedy now - the training wheels are probably still on after recent earlier years' trading cards
and ledger print outs..
Last time - Acquire some earning targets for a time was an answer before that came back to bite hard
before things were put on the blocks for a period of recovery .. with all the write-offs under the sun
Many may not have too much confidence in the short time since the big bad times, the collective bottoms
around the Board table have had enough time to condition themselves to better prevailing winds and
to maintain the ship on reasonable course without going back to old bad habits with follow on consequences .. ;)
If the wind direction should change - what then ? .. and they could easily change too ..
A company like this shouldn't have $24 m in the bank, it should have an appropriate level of working capital and an appropriate level of debt (appropriate, that is, to its sustainable ebitda).
The fact that we are prioritising paying down debt (to zero) is due to the poor decisions taken by poor management in the past. At some stage we should leverage appropriately and start to pay the long suffering shareholders some return.
Agree with you there
but STU probably has recent bad memories of Debt & what happened in the past 4 years .. ;)
So from this is it not lessons of the past not learned on what their Balance Sheet should look like optimised ? ;)
Maybe the new Finance big wig could have some better ideas ?
Good result imo. Gltah
I'd second this:
$7.6m earnings - above top end of latest guidance
Strong balance sheet with all debt repaid and $23.9m cash (though - a bit lazy, isn't it?)
good outlook: "Strong pipeline of secured contract work for 2H21 with improving activity in most sectors"
... and yes, they are paying a divie.
This will give the SP a boost :):
Market not liking it ,not sure why ? topped up more on open
Very disappointed that them beating their own forecast and resuming dividends resulted in a 5% fall in share price. Not sure what to make of it - could it be something to do with the small size of the dividend in comparison to their cash on hand of $24m and...
"with a net cash position of $23.9m as at 31 December 2020 to support capital investment and growth initiatives."
Are we off on some new trip into crazy "growth" investments and initiatives??? - come on directors and management, just get the existing company back on track reliably and start returning some cash to your long suffering shareholders - forget about empire building and stick to your knitting.
Also, can anyone explain the following for me
The NPAT is stated at
"The company has reported a Net Profit After Tax of $4.3m, up from a loss of $(37.0)m the prior year."
and dividend is
"Given the turnaround in performance and the improved economic outlook, the Board has been pleased to resume dividend payments with an interim dividend of 1.2 cents per share (unimputed), in line with Steel & Tube’s dividend policy of 60% - 80% of NPAT."
But 1.2c dividend on 165 m shares is $1.99 million which is 46.32% of NPAT
What's going on there?
Disclosure - reasonable size stake and probably looking to buy more on current weakness, but would like to understand said weakness first
1. Indiscriminate selling yesterday by traders and cautious /nervous investors in some stocks like STU which have performed exceptionally well YTD, rather than anything inherently wrong with the companies or economic settings imo. STU started the year at 93c and in a market which has gone backwards 7% YTD and 10.5% from its high, has still performed very well.
If inflation becomes a problem (which appears to be main reason for recent global selloff), then we know that well managed cyclical stocks with proven track records are actually the best inflation hedge.
STU is still a turnaround story so will need a few more runs on the board before investors and the market gain more confidence in the stock.
2. The 60% - 80% of NPAT will be made up with the final dividend. Directors are just being cautious and that's fair enough in the pandemic environment we are still in.
I thought it was a pretty good result. The second half is always far better than the first half. Currently there is a real supply issue ,so prices are rising with a lot more margin and less discounting. Couple with a big drop in costs I’m expecting a very good year end result.
I was a happy buyer at 98c
https://www.stuff.co.nz/business/ind...ederation-saysQuote:
Originally Posted by Stuff in an article linked below
I wonder whether this will see a progressive shift to the use of steel rather than wood for this this structural building work. This would obviously help steel suppliers like STU.
whats to say that the same issues wont also come to the fore with steel and other supplies / services ? ;)
are there enough chippies & sparkies around to do what's needed ?
Last time - with CHCH recovery they were importing them from afar to fill the Skills gaps ..
Solid interest today, waiting for the real fireworks to begin
Got an email from S&T today telling me how it is better than wood for houses and things and infinitely recyclable and excellent for the environment.
Go do your bit for nature, the planet and my net worth by building with steel tubes.
Steady rise over past few days, next trading update whenever that is will be key driver.
Yes, great to see upward movement at long last. I am looking forward to the next trading update. Volumes seem quite healthy too.
Don’t think you’ve seen anything yet. Still well undervalued and only trading currently at NAV. It’s going to be a very good result however the lazy balance sheet needs addressing . 23 million in cash in the bank and no debt as at 31st of December. Expect over 30 million in the bank for end of year results. If they can’t find any acquisitions then Either a share buyback or special Dividend needs to be considered.
The STU price chart is encouraging, medium term a nice run up from $0.47 Covid low, consolidation short term around $1 and a bolt upwards this week above the 50MA on good volume. Indicators suggest the overhead resistance at $1.09/1.10 will be a near term test.
Long term, this monthly chart gives something to aspire to. For anyone holding STU the past 20 years, hopefully the dividends were worth it. It's a long haul back to $5
Attachment 12440
Disc: hold at 5% of portfolio and planning to add above $1.10. Been a while since last bought Jan 2012, sold Oct 2013.
Good point.
So if the company pays out excess capital to shareholders as a dividend then all of them will have to pay tax on that dividend. Some will pay tax at different rates but for most it will be at 30 or 33 cents on the dollar, turning $1 of dividends into 70 or 67 cents. So you've just taken a perfectly good dollar that you own as a shareholder and realised a 33% loss on that capital instantly.
Instead that WHOLE dollar could be used to buy shares in a pretty decent business and thus a share of all future earnings not to mention a share of the assets which will include the leftover cash, at a 33 to 50% discount. Essentially that's what's happening. They're using the companies money to buy shares for you. Or concentrate your ownership, so if you work out your ownership of the company before and after the repurchase you will now own more of the company.
The math all depends on the discount to intrinsic value the shares are repurchased at, and this is not a fixed number and will change somewhat due to future performance, but the returns could well be 10 x higher vs the dividend depending what happens in future.
And I guess this is why some want a dividend in the hand rather than 2 in the bush. But a Dividend now immediately destroys value and a repurchase below intrinsic immediately increases value.
Buybacks at higher than intrinsic value will destroy value, and this is what most companies do unfortunately.
Cheers
Yeah you're absolutely right, would be a bugger but not the end of the world, you'd have the option to use the cash to buy more shares I guess, or not to sell in the first place.
The biggest danger to us all is that they try and spend it on something other than dividends or buy backs, if they do there is a virtual certainty that they will destroy value.
Yes this is definitely a company that should be prey, not predator
It would be real good if Fletcher's got interested in this curious kettle of fish again .. ;)
No-one would care about a Div, buyback or any other distractions then ..
I hope not. The board more or less told them to F**K Off when they came in at $1.95. Commerce Commission will also have a say.
STU have under delivered for so long. I am surprised shareholders allowed the Chair to stay. It won't happen and like you say the "Board"' had better deliver. Shareholders deserve that much
What is STU's dividend policy? Seem hell bent on paying a final divie don't they
Analysts don’t think much of STU ...target prices range from $0.66 to $1.00
And Shareclarity DCF value is $0.70
Who covers them? I didn't think anyone mainstream still covered them in any meaningful way. To me that is a lot of the attraction.
As some of you may know I was an analyst many moons ago. But you can never take the anal out of analyst. In fact I think I covered STU back in the 90s. I would only put a target price on something if I had done a stack of work eg top down and bottom up. For this company 2-3 months full time work to establish then move to monitor/observe. Oh I forgot also write brokerage!!
I have a view based on a fraction of that full analysis. I think the company has made the moves that indicate the beginnings of a successful turnaround but early days. I think the balance sheet will have to be addressed at some point. I think the dividend "policy" needs a full re-think based on cashflow. I do not believe that the company has any realistic large acquisitions on the horizon. I think shareholders can signal to the board that support for this is weak/non-existent.
I think the price should be well north, no longer a value trap. I will disclose that I own stock.
Re post from earlier, still think valid, in fact the immediate future outlook may be slightly clearer now.
Still seems very cheap and appealing against the wider market particularly, only NZX stock I own.
Are these analysts running their own capital? Why do they need salaries from firms for doing research - if they're any good they'll be running their own and close friends and family money?
Do people realise how expensive the NZ50 is compared to any historical precedent...
They have averaged a Net Profit of 17.4 million/year over a period of 13 years which includes a once or twice in a lifetime global recession. Now granted with a lot of those earnings they have retained them and destroyed them in spectacular fashion. They also paid out 15 million a year average in dividends and then took back a lot of money in an equity raising, net of which the dividends would have averaged 9 million a year. They at times employed significant leverage to produce these cash flows. The top-line growth over this whole period has been non existent.
So looking forward, which is I believe is difficult - If we take one case and I'm going to call it 'best conservative case' and assume that revenues remain the same going forward, margins remain similar and thus net profit remains the same averaged over time. BUT this time they don't destroy any retained cash, they don't employ it well either, just for every $1 retained only $1 of value is created. Under this scenario we can now try and assume a multiple for this profit.
Now when deciding a multiple, we see that the NZ50 PE according to S&P, is about 45. Yes this will be somewhat because of COVID earnings but regardless it's incredibly high, all time high in fact (look at the CAPE). People will say 'yes but with the discount rate/bond yields/interest rates so low' and I will think hmmm why are they so low. Mostly because we're in the middle of another massive recession and have had abysmal economic growth really since 2007 aside from what a huge population increase has given us. I digress, but I'm not at all comfortable that we really have conditions that warrant higher than long term average PE's.
So for regular business like Steel and Tube that has kicked it's old habits but still just plodding along... It is a duopoly and now has no debt, so even if it performed as it has in the past, it's now all equity and could be goosed if that made sense in future... Hell I'm not giving it any more than 15. So say 17 million times 15 is around 250 million. There are 166 million shares so that's $1.50.
So in my opinion, anyone that thinks it is worth more than that (and I may be one of them) is speculating, probably on multiple moving balls.
Now I can do a worst case and base that on exact historical performance (it can get worse than that too) and I can do a best case in which I would attribute at least average capital allocation skills, say retained earnings reinvested at 7%, some leverage applied, growth at least in line with population growth. But I'll just stick with my case above and I can tell you I'll probably sell early as a result but I'm totally happy with that as if I don't then I may as well go to the Casino.
This is why I was ranting so hard about it when it was in the 50's. It was massively undervalued.
Great to see a slow but steady rise in the share price with not insignificant volumes.
I am hearing that local construction companies are going back to STU after saving themselves a dollar or two with Chinese product and are finding STU is busy servicing loyal clients. It will be interesting to see what happens with margins, I hope STU doesn't push it too hard and supports its loyal clients by not pushing margins too hard. This is an opportunity for STU to show the construction industry that it should stay with domestic suppliers long term, and therefore burn off these other suppliers. Any one with construction industry connections want to throw in your 2 cents worth?