By Jenny Ruth
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Friday 19th February 2010 |
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Steel & Tube Holdings' first-half earnings were worse than expected and a sustainable turning point is at least 12 months out, says First NZ Capital analyst Kar Yue Yeo.
The company reported an 85% drop in first-half net profit to $3.2 million, 14% lower than Kar Yue's estimate, reflecting a weaker than expected pricing environment.
"Despite a surprisingly positive tone to Steel & Tube's guidance for the second half, for now, we are less sanguine about the strength of New Zealand residential building approval recovery due to the recent weakness in housing transactions and mortgage approvals," he says.
In addition, a recovery in the agriculture and non-residential construction sectors may only be evident in the fourth quarter (three months ended June), he says.
Given these factors, Steel & Tube's shares are unlikely to outperform the market. "However, we are mindful that the currently weak trading environment and Steel & Tube (share) price may be a timely opportunity for OneSteel to resurrect its previous bid for the company," Kar Yue says.
Australia-based OneSteel, which owns 50.3% of Steel & Tube, abandoned a takeover bid in October 2008 due to the global financial crisis. OneSteel had intended to offer $4 a share.
BROKER CALL: First NZ Capital rate Steel & Tube Holdings as neutral.
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