STU - Steel & Tube Holdings

[Shareguy]

After the downgrade we have

Craig's at $.90 and PER based TP of $.65
Jarden at  $1.27
F bar at    $1.16

So my take is that the analysts got this so wrong in FY22. Craig's had forecasts of 13.2 EPS and dividend of 9.2cps. Actual was 18.3 EPS and 13cps dividend.

Now Craig's have gone the other way. Forecast before downgrade for FY 23 was EPS 13 and DPS 9.3. Updated today to EPS 10.52 and DPS 7.25. NOTE Fbar latest has EPS of 9.7 and 7.0 DPS.

What's clear is STU is not the stock for the faint hearted. I have a large holding which is still in the green....Just. As Warren Buffet said don't use emotion when buying stocks.  I just hope my years in the industry has not jaded my judgement on this one.  The result was a lot worse than I was expecting.

I am a long term holder and think that the worse is behind us. Share markets and my portfolio have been on the up since last year. The share price is holding up which suggests to me that the result is not unexpected when you consider the decline in the share price over the last year.

In a separate presentation issued to market, STU has noted significant medium to long-term
opportunities it expects to chase from rebuild activity, climate change, seismic strengthening
and water services reform, including:
$62b budgeted Government spend on infrastructure 2022 to 2026, excluding cyclone
and flooding rebuild cost.
Cyclone/flood rebuild estimates are currently at $9-14.5b from 2023 to 2026.
STU states that it continues to maintain a healthy pipeline of infrastructure and commercial
projects (although we note the announced declines has surprised), and will continue to
pursue business growth opportunities through both organic expansion and smaller M&A
activities.

In the online update Mark says the shares are undervalued. If the shares are undervalued a buy back seems sensible given the low debt in my opinion. 

At the current price of $1.00 we have a FY23F PE of 9.5 with a very attractive yield.  I also note that Craig's have huge declines in EPS after FY23 halving to 5cps for FY24 and FY25.  So if Craig's are right shareholders should be selling as the shares are way overvalued as its going even further downhill from here.

The industry is due for rationalization in my opinion. Bluescope through its ownership in NZ have a blocking stake of 15.8 percent.  Lenon holdings also have 5.3 percent. Bluescope in Australia has a distribution business that supply's both Steel and Aluminium products directly to customers. In NZ Bluescope rely on distributors, STU being one of several who supply to end users.

STU roofing is one of the most profitable parts of the business and Fletchers were not happy at the time when it was sold by NZ Steel to STU.  If we look at the current players in the market Vulcan and Asmuss don't supply roofing currently. 

I think there is going to be change and the longer that S&T underperforms with a dismal share price the higher the chance of change.  In the meantime I'm happy to continue to hold and take the attractive dividends.  I also think Craig's forecast for YE24 and YE25 are rubbish.

Disc. Do your own research and I might be very wrong.   

[Poet]

After the downgrade we have

Craig's at $.90 and PER based TP of $.65
Jarden at  $1.27
F bar at    $1.16

So my take is that the analysts got this so wrong in FY22. Craig's had forecasts of 13.2 EPS and dividend of 9.2cps. Actual was 18.3 EPS and 13cps dividend.

Now Craig's have gone the other way. Forecast before downgrade for FY 23 was EPS 13 and DPS 9.3. Updated today to EPS 10.52 and DPS 7.25. NOTE Fbar latest has EPS of 9.7 and 7.0 DPS.

What's clear is STU is not the stock for the faint hearted. I have a large holding which is still in the green....Just. As Warren Buffet said don't use emotion when buying stocks.  I just hope my years in the industry has not jaded my judgement on this one.  The result was a lot worse than I was expecting.

I am a long term holder and think that the worse is behind us. Share markets and my portfolio have been on the up since last year. The share price is holding up which suggests to me that the result is not unexpected when you consider the decline in the share price over the last year.

In a separate presentation issued to market, STU has noted significant medium to long-term
opportunities it expects to chase from rebuild activity, climate change, seismic strengthening
and water services reform, including:
$62b budgeted Government spend on infrastructure 2022 to 2026, excluding cyclone
and flooding rebuild cost.
Cyclone/flood rebuild estimates are currently at $9-14.5b from 2023 to 2026.
STU states that it continues to maintain a healthy pipeline of infrastructure and commercial
projects (although we note the announced declines has surprised), and will continue to
pursue business growth opportunities through both organic expansion and smaller M&A
activities.

In the online update Mark says the shares are undervalued. If the shares are undervalued a buy back seems sensible given the low debt in my opinion. 

At the current price of $1.00 we have a FY23F PE of 9.5 with a very attractive yield.  I also note that Craig's have huge declines in EPS after FY23 halving to 5cps for FY24 and FY25.  So if Craig's are right shareholders should be selling as the shares are way overvalued as its going even further downhill from here.

The industry is due for rationalization in my opinion. Bluescope through its ownership in NZ have a blocking stake of 15.8 percent.  Lenon holdings also have 5.3 percent. Bluescope in Australia has a distribution business that supply's both Steel and Aluminium products directly to customers. In NZ Bluescope rely on distributors, STU being one of several who supply to end users.

STU roofing is one of the most profitable parts of the business and Fletchers were not happy at the time when it was sold by NZ Steel to STU.  If we look at the current players in the market Vulcan and Asmuss don't supply roofing currently. 

I think there is going to be change and the longer that S&T underperforms with a dismal share price the higher the chance of change.  In the meantime I'm happy to continue to hold and take the attractive dividends.  I also think Craig's forecast for YE24 and YE25 are rubbish.

Disc. Do your own research and I might be very wrong.   

Good post shareguy. Pretty much exactly the way I see it as well.

[winner (n)]

Shareguy, Is that Lennon Holdings one Phil Lennon of Apex Rentals fame and renowned Christchurch property owner.

Must like STU a lot to invest best part of $10m at much higher prices than today's price.

For a while thought it was you.

[Shareguy]

Shareguy, Is that Lennon Holdings one Phil Lennon of Apex Rentals fame and renowned Christchurch property owner.

Must like STU a lot to invest best part of $10m at much higher prices than today's price.

For a while thought it was you.

Yes Winner. Last disclosure he purchased 5m shares for ave cost of $1.44

[entrep]

I agree with you that Craigs analysis pieces are garbage in general.

STU is my largest holding and I just noticed I am in the red every so slightly.

[winner (n)]

Mark said things were getting tough and the numbers said last 4 months sales down 12% on pcp

Stats NZ reported today .....In the March 2023 quarter, the actual volume of ready-mixed concrete produced was 983,106 cubic metres, down 13 percent compared with the March 2022 quarter.

Hey some some correlation between concrete and steel

[Left Field]

Mark said things were getting tough and the numbers said last 4 months sales down 12% on pcp

Stats NZ reported today .....In the March 2023 quarter, the actual volume of ready-mixed concrete produced was 983,106 cubic metres, down 13 percent compared with the March 2022 quarter.

Hey some correlation between concrete and steel

I feel one of Winners fabulous charts coming on......

[Shareguy]

Mark said things were getting tough and the numbers said last 4 months sales down 12% on pcp

Stats NZ reported today .....In the March 2023 quarter, the actual volume of ready-mixed concrete produced was 983,106 cubic metres, down 13 percent compared with the March 2022 quarter.

Hey some some correlation between concrete and steel

Gosh thats a great coincidence alright. The majority of products not directly related to concrete usage.

[Basil]

Interesting Craigs target price is 90 cents,while Jarden's is $1.27.

Disc.I have sold.

Good call in my opinion.
Yesterday I postulated eps for FY24 might be only 7-8 cps.  Gosh if Craigs are right and its only about 5 cps for FY24 and FY25....that's really, really ugly and this might get down to retest the Covid lows of 50 something cents where it resided for much of 2020.
Share prices usually follow earnings eh. 
Must admit I am surprised after earnings halving people are still wanting to front with more than a back a pop for these.  Maybe they are "buying" the undervalued talk and ignoring the earnings collapse?

[entrep]

Look at Craigs' track record, that's all you need to know

[Teitei]

Look at Craigs' track record, that's all you need to know

On STU, they have been all over the place except the right place!

[BlackPeter]

Mark said things were getting tough and the numbers said last 4 months sales down 12% on pcp

Stats NZ reported today .....In the March 2023 quarter, the actual volume of ready-mixed concrete produced was 983,106 cubic metres, down 13 percent compared with the March 2022 quarter.

Hey some some correlation between concrete and steel

Sure, there is some correlation, though I don't think that reinforcement steel is STU's biggest seller. STU make money with selling roof steel, steel beams (for large halls and buildings), various steel nuts and fittings, pipes (not just made of steel), lots of aluminium bits and pieces, and yes - a bit of reinforcement steel.

And yes, while much of this stuff might require a newly poured concrete base ... you won't need it for renovations and for lots of the pipe applications.

[winner (n)]

Nick from WHS all excited with his new store up north ...... energy efficient and all that as well as "the use of engineered wood instead of steel for the structure, which produces 90% less carbon than conventional steel framing,"

Wood the way of the future?

[BlackPeter]

Nick from WHS all excited with his new store up north ...... energy efficient and all that as well as "the use of engineered wood instead of steel for the structure, which produces 90% less carbon than conventional steel framing,"

Wood the way of the future?

The problem with wood is - you can use it only once for construction, and than you have to throw it away (and give all this carbon back into the atmosphere, no matter whether you burn it or let it rot).

Steel on the other hand can be reused and recycled over centuries ... what am I saying - millenia!.

[winner (n)]

Sure, there is some correlation, though I don't think that reinforcement steel is STU's biggest seller. STU make money with selling roof steel, steel beams (for large halls and buildings), various steel nuts and fittings, pipes (not just made of steel), lots of aluminium bits and pieces, and yes - a bit of reinforcement steel.

And yes, while much of this stuff might require a newly poured concrete base ... you won't need it for renovations and for lots of the pipe applications.

Was just a casual observation yesterday.

For what's it worth this century there has been a strong correlation between annual readymix production and annual STU sales.........also for what it's worth statistically readymix production numbers 'explain' about 77% of STU sales

That's a lagging number so I looked at consents data for this century as a leading indicator. That showed a pretty good correlation between consents and STU sales with a year lag.

STU must have some method of predicting future sales volumes. That's stupid isn't it as even they can't predict the future so let's call it a forecast. In their forecasting models they obviously use things like consents data as most of their presentations have a rave about industry indicators.

Again for what it's worth consents are predicting quite a fall in steel volumes over the next 18 months.