Forum Archive Index - March 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi salee,

Steel and Tube is on the outer radar screen of my watch list.  It is 
a very boring company, but this is no bad thing from an investors 
point of view as 'boring' often equates to 'overlooked'.

It has a strong market position in the steel section business in New 
Zealand, and if the once rumoured merger with Fletcher Steel ever 
came to pass they would hold a near monopoly on this line of 
business.  

The share price has jumped up sharply over the last year, but so 
have the earnings.  If first half earnings are maintained in the 
second half of the year, you might be looking at an imputed dividend 
yield of around 9.5% even if you bought at today's prices.  There has 
to be some doubt about that, though, as there is a risk of a 
construction downturn should interest rates head north, and there is 
potential competition from steel shut out of the US market by tariffs 
to be dumped here.

Nevertheless despite the improved performance, return on shareholders 
equity was only 8829/121918 = 7.2% (according to my calculations).  
So there aren't huge margins to be made in this business.

STU seem to be under threat of being 'heavied' by Australian 
majority shareholder 'Onesteel' into buying another arm of the family 
business.  Whether this is a good deal or not only the independent 
report on the proposed deal will disclose.

Despite this, I would rate STU as well worth considering for the 
'income' part of any portfolio. SNOOPY

disclosure: No shares held


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