By Jenny Ruth
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Thursday 3rd December 2009 |
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Steel & Tube Holdings' earnings outlook has deteriorated substantially due to lower steel volumes, down about 20%, and lower steel prices, down more than 30%, says Forsyth Barr analyst Rob Mercer.
"We believe that earnings are likely to remain low over the next few years because we expect the trend in non-residential building consents to decline sharply," Mercer says.
The five-year boom in non-residential consents - the quarterly average level of consents since the 2004 June quarter rose from $425 million to $1.05 billion and peaked at $1.3 million in the 2009 June quarter - is expected to decline 30% over the next few years, he says.
"The market has already experienced a decline in residential and small-to-medium construction activity, but the emerging risk relates to a decline in large infrastructure-related projects, which we believe will keep downward pressure on steel volumes over the next couple of years."
If large infrastructure projects fall between 20% and 30%, this will lead to further pressure on gross margins as Steel & Tube's competitors chase market share, Mercer says. "We see this as a key medium-term risk for Steel & Tube."
The majority of the company's earnings are exposed to the commercial construction, manufacturing and agricultural sectors.
BROKER CALL: Forsyth Barr rate Steel & Tube as reduce.
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