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Daily ShareChat: Steel and Tube

By Jenny Ruth

Wednesday 28th July 2010

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 Jenny Ruth

Although Steel & Tube Holdings' trading conditions have stabilised, they are still challenging, says Craigs Investment Partners.

“Activities in the domestic construction and rural sectors are still subdued and steel prices are expected to remain volatile,” Craigs says. Increasing macro uncertainty may derail the global steel market recovery.

Since the company released its first-half results in February, which were below management's guidance due to significantly lower sales volumes and weaker-than-expected steel prices, recessionary conditions have stabilised.

Management expected the second half to be stronger, but how strong it was will have depended on activity levels in the construction, rural and manufacturing sectors.

“Apart from the manufacturing sector, which is showing strong growth, the outlook for construction has deteriorated,” the broker says.

“Leading indicators (ie house sales, net migration and interest rates) all point to an imminent downside risk to the recovering residential market,” it says.

“Although the balance sheet of the company is in good shape, it is difficult to see share price momentum in the absence of a catalyst.”

Craigs is forecasting net profit for the year ended June 30 was just $8 million, down from $26 million last year. For 2011, it is forecasting a $15 million net profit, rising to $21 million the following year.

Recommendation: Hold

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