- Structural steel leader warns again
- Earnings to fall further in full year 2026
- £10 million buyback cancelled
Shares in Severfield (SFR) nearly halved to 25.6p in early dealings on 3 March after the structural steel group delivered another profit warning, with the latest downgrade blamed on continuing project delays as ‘challenging’ market conditions in the UK and Europe persist.
The leading UK structural steel fabricator, which massaged profit guidance lower with its half year results last November, also cancelled a £10 million share buyback as the company prudently seeks to conserve cash to see it through testing market conditions.
As of 31 January 2025, net debt stood at £55 million and is expected to be in the £45 million to £50 million range by year-end, providing Severfield with cash headroom of £25 million to £30 million.
GUIDANCE DOWNGRADED AGAIN
The leading UK structural steel fabricator, which also has a strong presence in Northern Europe and an Indian joint venture, has sought to mitigate the effects of tough market conditions through new project awards, cost-cutting and the cancellation of its share buyback.
Unfortunately, it has ‘not been possible to secure sufficient work in the short term to fully offset the non-recovery of factory overheads in Q4’, warned the company.
Combined with a revised contract judgement to reflect changes on a long-term nuclear project, this means underlying profit before tax for the year to 29 March 2025 is now expected to be in the £18 million to £20 million range, significantly below earlier estimates.
Furthermore, Severfield now sees underlying profits for full year 2026 coming in below the downgraded forecast for full year 2025, which explains the severity of the share price plunge.
PRICING REMAINS TIGHT
Severfield explained that market conditions have shown ‘no signs of improvement, with pricing remaining at tighter levels for longer than expected in a competitive market’.
Project opportunities continue to be either cancelled or delayed, ‘consistent with the current lower level of business confidence in the UK economy as a whole’.
This includes a large project for which production was expected to commence in January, but which has been kicked into the next financial year.
Severfield sought to soothe investor sentiment by stressing it has already secured some attractive large projects for full year 2027 and is also seeing ‘future large opportunities in sectors such as data centres, manufacturing (industrial) and commercial offices, including the emergence of several planned large developments in London’.
The company added: ‘Our businesses also remain well positioned to win work in markets with positive long term growth trends including those which are driving the green energy transition.’
BLEAK PICTURE
Russ Mould, investment director at AJ Bell, said: ‘Shares in structural steel business Severfield have collapsed on a major profit warning which paints a bleak picture for the company’s prospects.
‘The company, which has worked on high-profile projects like the expansion of Lord’s cricket ground and the Tottenham Hotspur stadium, was being left to rust by investors after a series of projects were delayed or cancelled.’
Mould added: ‘This suggests the outlook for the wider construction space in the UK is looking constrained. While Severfield is more optimistic about the longer term, investors don’t seem to have much patience for this argument and the cancellation of a share buyback, while it may be prudent, is not going to win anybody round.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
