The steel business continues to buoy the earnings of BlueScope, if its surprise December half year upgrade is anything to go by.
Judging by the brief explanation in yesterday’s statement, the improvement is coming from higher demand on both sides of the Pacific – Australia and the US.
In a filing with the ASX on Thursday, BlueScope said it bow expects underlying earnings before interest and tax (EBIT) for December half year will be in the range of $2.1 billion to $2.3 billion.
That’s up from the previous guidance range in August of $1.8 billion to $2.0 billion – with the upgrade coming off the back what stronger demand, especially in Australia.
“The business continues to benefit from strong spreads, prices and demand. Amidst the ongoing challenges of the COVID-19 pandemic, the BlueScope team continue to do an outstanding job,” BlueScope CEO Mark Vassella said in the statement.
He nominated stronger than expected hot rolled coil prices and spreads, increased domestic volumes in Australia, particularly in higher value products for the building and construction sector, as well as margins in its downstream businesses.
In Thursday’s statement BlueScope said the main contributors to the improved outlook for 1H FY2022 underlying EBIT were:
- North Star, the company’s US mini-mill, driven by stronger than expected hot rolled coil prices and spreads, partly moderated by higher alloy and conversion costs, including labour;
- Australian Steel Products, with further increased domestic volumes, particularly in higher value products for the building and construction sector. Margins in our downstream businesses are also benefitting from the robust demand environment. Export coke contribution has also outpaced expectations with margins remaining robust; and
- The North America coated products business, with ongoing strong steel prices and continued strong demand.
With volumes and prices continuing to outperform expectations, BlueScope is seeing a further increase in net working capital employed in the business during the current half.
The last point would normally spook investors as it means borrowings will rise (along with interest costs) to finance the expansion in output and stocks. But with interest rates so low, that should not be such a worry.
BlueScope said it will provide more detail on trading conditions at its 2021 AGM November 18.
BlueScope shares rose 0.7% to $20.28
Meanwhile Spanish-controlled contracting and engineering group CIMIC (the old Leighton Holdings) has maintained guidance after reporting a net profit of $303 million for the first 9 months of the financial year on a 9.2% rise in revenue to $10.9 billion.
The company says it is expecting a net profit of $400 million to $430 million for the financial year ending December 31, subject to market conditions and excluding any one-off items such as the potential Ventia IPO.
In its September quarter results, released on Thursday, CIMIC said it won $16 billion worth of work in the three months, three times the pandemic $5.1 billion for the same quarter of 2020
“CIMIC delivered strong operational performance in the nine months to September, led by the performance of Australian Construction and Services,” CIMIC executive chairman Juan Santamaria said
“The result was achieved amid COVID related shutdowns in New South Wales, Victoria and New Zealand, indicating the resilience of our business and effective management of operations throughout the pandemic.”
“The outlook for our core markets remains attractive, underpinned by public infrastructure spending to stimulate economic recovery from the pandemic, and we are well positioned to respond,” says Mr Santamaria.
Investors loved the news of the surge in new business and sent the shares up more than 5% to close at $21.88.