Steel & Tube moves up an earnings gear

Friday 20th August 2004

One market theme in recent months has been the spate of analyst downgrades from buy/accumulate to neutral/hold.

This isn't because the performance of the companies concerned has deteriorated but because the market has pushed their share prices upwards to the point where broking houses can no longer recommend them as representing good value.

A case in point is Steel & Tube Holdings, which is now on "hold" at Forsyth Barr, First New Zealand Capital, Goldman Sachs JB Were, and ABN Amro.

As the chart shows, anyone buying into Steel & Tube in late 2000 would have tripled their money.

This would probably have come as a huge surprise as the company had previously looked like a solid but mature earner, pottering along at about the same level of profitability with the occasional bad year.

Driven by the residential building boom, operating earnings have risen by 47% over the past two years.

The housing boom is expected to slow this year but, in common with Fletcher Building, Steel & Tube believes accelerating commercial construction, the return of farm spending, and the bulging infrastructure pipeline will allow it to report profits at the same level this financial year.

The dividend payout, including regular 10c special payments, has now reached 37c, representing a gross yield of 12% an attractive level for a company with good management and high "earnings visibility."

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