Forum Archive Index - October 2002

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

Those seeking income from an investment might care to take a look at 
Steel and Tube, currently yielding around 9.5% (after tax).  However, 
future yield prospects are not quite this rosy as that yield 
includes payment of a special dividend of 10c per share which won't 
be repeated in FY2003, or will it?

Even with the payment of this special dividend, the balance sheet of 
STU is in remarkably good shape with shareholders funds now 77.5% of 
total assets.  We may not have seen the last of the special dividends 
from STU!  Without the special dividend the yield on Steel and Tube 
reduces to 6.5% (after tax).   This is much better than you would get 
at the bank but not exceptional in today's market.

Open the shareholders report at the directors page and you are faced 
with a series of portraits of grey suits, made even greyer as the 
photographs are in black and white.    This is no bad thing as many 
New Zealand companies have come unstuck trying to pursue a more 
colourful future.  It is good to see a group of directors sticking to 
their knitting!  The conservative approach is paying off with return 
on equity up to an impressive 15% last year.   The grandiose STU 
expansion into steel retailing in Canada has been jettisoned and the 
company seems all the better for it.

Persistent rumours of a merger with main rival 'Fletcher Steel' seem 
to have come to nothing.  Even if the merger talk is re-ignited, I 
find it hard to see how such a major concentration of market power 
would be allowed by the commerce commission.

It is hard to imagine a New Zealand without Steel & Tube as it is 
such a significant supplier to every section of society.   
Residential housing uses lots of long run roofing.  There is a steady 
demand for light steel section for both rural and light construction. 
 However, construction is a cyclical business, and I think it will be 
a challenge for Steel and Tube to be able to top their 2002 
performance in 2003.  An eternal curse on STU seems to be the 
reinforcing and fabrication division.  This division requires a 
continuous stream of projects which use 500 tonnes of steel or more 
to generate a decent profit.  There is a constant battle to win such 
projects under the competitive tendering process.

STU is 50% owned by Australian company 'Onesteel'.  Should 'Onesteel' 
decide to sell its stake, this means the NZ takeover code will be 
triggered.  However, there is no obvious reason for 'Onesteel' to 
sell out.

To sum up, growth investors should look elsewhere.  For income 
investors,I think there is a place for STU in a balanced portfolio of 
high yielding shares.   However, my view is that at $2.95 and a 
prospective 6.5% yield , STU is fully but fairly priced.   
Anyone overweight in STU might consider rebalancing their income 
portfolio towards other income shares, while retaining their core 
holding of Steel and Tube.

SNOOPY

discl: No shares held


---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
----------------------------------
"Sometimes to see the wood from the trees, 
you have to cut down all the trees."



----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/