The Investment Column: Prices fears temper steel profits
Chief executive Sir Brian Moffat accepted yesterday that since the steel industry was at the top of its cycle, profits for the current year would be adversely affected, though he still anticipated a "satisfactory performance".
Quite what that means largely depends on your view of how far steel prices will fall in the next two years. Some analysts are predicting a "soft landing" following the difficulties in the second half last year, which spilled over into the first quarter of 1996. But the bears are predicting significant falls in steel prices. They are also wary of British Steel's ability to manage the decline.
All this is harsh on a company whose shares had a good run earlier this year. Profits were struck at a record pounds 1.1bn compared with the previous year's figure of pounds 578m.
The results were boosted by the contribution of Avesta Sheffield, the Swedish stainless steel group, in which British Steel increased its stake to over 51 per cent. They also include a full-year's contribution from British Steel Engineering Steels, British Steel Forgings and Scunthorpe Rod Mill, all of which became wholly owned in March 1995.
Even with capital expenditure topping pounds 320m, there was a cash inflow of pounds 561m, which took net funds as at 30 March to pounds 690m. There has been talk of a share buy-back but the company said yesterday that it was more likely to spend the cash pile on acquisitions.
British Steel shares have enjoyed a strong run in the last few years, rising from a low of just 47p in 1992 to almost 200p earlier this year. But the price has come off in the last couple of months, reflecting concerns over de-stocking and the steel price. Sir Brian indulged in a fresh outburst against state subsidies, though British Steel has responded in an aggressive manner to produce more to try and improve short-term profitability.
The big question is whether the newly privatised European steel industry will change its past habits and rein its production back. In the past they have, like British Steel, made the dash for volumes to support their overheads as the cycle turns.
With analysts forecasting profits of pounds 578m this year, the shares, at 178p, are on a forward rating of 8. Avoid.
International Women's Day 2014: The shocking statistics that show why it is still so important
Feminist quotes to inspire you on the International Women's Day
Oscar Pistorius trial first week: Never mind a media scrum – murder case becomes bizarre safari following the tracks of a wounded lion
International Women’s Day: 'When a man gives his opinion, he's a man. When a woman gives her opinion, she's a bitch' - feminist quotes from female icons to inspire you
Malaysia Airlines plane: Hundreds feared dead as Vietnam air force finds oil slicks found in sea
Apple's Tim Cook: Business isn’t just about making profit
Thousands of young people forced to go without food after benefits wrongly stopped under 'draconian' new sanctions regime
Ukraine crisis: New navy chief 'defects' and surrenders Crimean HQ as Putin claims ultranationalists forced intervention
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
- 1 To those who can’t see the point of International Women’s Day: you are the very reason it exists
- 2 International Women's Day 2014: The shocking statistics that show why it is still so important
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Orgasm machine to deliver climax at the push of a button
- 5 Liam Neeson turned down James Bond role because Natasha Richardson said she wouldn't marry him if he took it
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...