This report is an updated version of the report published on 20 May 2022 at 2:52 PM (GMT +10)

BlueScope Steel Limited

BSL Details

BlueScope Steel Limited (ASX: BSL) is one of the significant manufacturers of painted and coated steel products globally. With rich expertise in steel, the company delivers vital components for houses, buildings, structures, and automobiles, among others.

Result Performance for the First Half Ended 31 December 2021 – H1FY22

• Sales revenue stood at $9,418.7 million, up 62% YoY, on better global steel prices and strong volume demand across the portfolio.
• Underlying EBIT stood at $2,204.1 million, increased by a triple-digit 315% YoY, due to solid steel spreads primarily due to better global steel prices and higher demand, partly offset by increased costs.
• Resultantly, underlying NPAT grew 373% to $1,573.4 million, primarily due to higher underlying EBIT. Reported NPAT grew 398% to $1,643.5 million, primarily due to solid underlying EBIT.

Source: Company Reports, Analysis by Kalkine Group

Outlook

On 18 May 2022, the company revised its guidance, where it stated that underlying earnings before interest and tax (EBIT) for H2FY22 will be in the ambit of $1.375-$1.475 billion (Prior guidance range: $1.2-$1.35 billion), subject to spread, foreign exchange and market conditions. The strong outlook is anticipated due to better earnings projections for North Star and North America coated business driven by improved realised steel prices and spreads in the United States. Further, other businesses are anticipated to perform consistently. Due to supply chain disruptions, the domestic Steel Products have reflected softer than projected domestic despatch levels. This has been partially offset by solid realised steel spreads and above expected contributions from the downstream businesses.

Key Risks

The company is exposed to the risk of a deep or prolonged economic downturn that would affect demand for the group’s products and financial prospects. It is also susceptible to the risk of declines in steel price or any significant and sustained increase in the price of raw materials and no corresponding increase in steel price. Additionally, fluctuation in foreign exchange rates, mainly the Australian dollar relative to the US dollar, and higher competition are other potential risks.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis), considering its healthy performance in H1FY22, improved earnings guidance, robust demand environment, and healthy liquidity position.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $18.05 per share as of 20 May 2022 (Time: 12:35 PM (GMT+10), Sydney, Australia).

BlueScope Steel Limited (BSL) is a part of Kalkine’s Global Big Money Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.