At 63.6p structural steel specialist Severfield (SFR) looks a rare winner in a devastated British steel industry.

The knock-on effect of oversupply in China has put unprecedented pressure on steel prices in Europe and, coupled with a strong pound, is causing all sorts of problems for UK steel producers. The debate about the pros and cons of Government support for what some on the left would undoubtedly see as an industry vital to Britain’s interests is likely to run and run.

Lower commodity prices should be a boon for fabricators and those companies for whom steel is an input cost. But lower steel prices cannot claim the credit for Severfield’s strong first half margins.

Interims (24 Nov) from the £187 million cap showed strong operational performance driving revenue 20% higher year-on-year to £117.1 million in the six months to 30 September.

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The steel fabricator also posted underlying pre-tax profit of £4.8 million, up significantly on the £3 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.

Speaking to Shares, Lawson maintains that the decline in the steel price have been passed on to customers and that a tripartite strategy for margin growth has been deployed.

First off, Severfield has focused on improved productivity. It 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.

Lawson identifies several growth areas. First is 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.

House broker Jefferies has a ‘buy’ with 73p price target and we share the optimism of analyst Andy Douglas who maintains that ‘Severfield still has much going for it, in our view... converting the pipeline of opportunities is subject to delays, but we like the direction of travel and upside remains’.