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Daily ShareChat: Steel & Tube

By Jenny Ruth

Sunday 22nd August 2010

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 Jenny Ruth

Steel & Tube Holdings' second-half results "provided sufficient comfort that the company can sustain its second-half performance despite weaker-than-expected revenue," says Kar Yue Yeo, an analyst at First NZ Capital.

The company's $189 million second-half revenue of $189 million was 5% down on Kar Yue's forecast but its second-half net profit of $6.7 million was 40% ahead of his forecast.

The sales shortfall reflected lower-than-expected volume and a lower domestic price, despite higher global steel prices.

"While domestic price increases usually lag global spot price increases by two to four months, the second half result suggests there is some competitive pressure among the top four operators," he says.

Kar Yue is expecting volume in the current year will be flat to slightly down and prices will be flat to slightly up compared with the year just gone.

Steel & Tube shares may not look cheap against forecast 2011 earnings (Kar Yue is forecasting a $13.7 million net profit), they are trading well below his $3 mid-cycle valuation.

"While there is still some uncertainty of the timing of a recovery in the New Zealand residential sector and the extent of the weakness expected for the non residential sector in (the year ending June 2011), we think this is now fairly reflected in Steel & Tube's stock price,"

Recommendation: Outperform (raised from neutral).

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