A robust set of half-year results from structural steel specialist Severfield (SFR) sees shares in the £198.2 million cap surging 7.9% higher to 61.5p as the group's strong operational performance drives revenue 20% higher to £117.1 million. But revenue growth wasn't the only headline for Dalton-based steel fabricator. In the six months to the end of September, underlying profit before tax came in £4.8 million, up significantly from the £3.0 million in the same period a year earlier.
But for chief executive Ian Lawson, the real headline was margin growth and the group's underlying operating margin printed at 4.3% compared to 3.7% in the first half of 2014. Given the falls in steel prices over the past few quarters, did this contribute to rising margins? Speaking to Shares, Lawson maintains that steel price falls have been passed onto customers and that a tripartite strategy for margin growth has been deployed. First off, Severfield has focused on improved productivity. The group has invested in new plant and machinery which makes higher quality product with a shorter turnaround. Secondly, the group has sharpened its on-site focus, concentrating on the effectiveness of its on-site delivery and finally, the group has created a greater emphasis on valuing risk at the tender stage where significant savings can be made.
Going forward, Lawson identifies three major growth areas; namely the London commercial property market where demand for new office space shows little sign of slackening off. Industrial distribution space remains at a premium as both wholesalers and retailers continue to transition to a more an more online market place and finally Severfield expects to see continued growth in the transport infrastructure space, at least if the government's National Infrastructure Plan is to be taken at face value. Housebroker Jefferies sees Severfield as a buy with 73p price target and analyst Andy Douglas maintains that 'Severfield still has much going for it, in our view. There is a clear path to further sales growth, EBITA margin progression and the Balance Sheet is strong (and will strengthen). Converting the pipeline of opportunities is subject to delays, but we like the direction of travel and upside remains.'