Steel can power UK’s energy ambitions, says Severfield boss
Steel has a vital role in boosting the UK’s energy infrastructure and could help power the transition to a greener economy, argued Severfield chief executive Alan Dunsmore.
The steel boss told Morning Wire that the main opportunity in a market defined by challenging headwinds such as inflation and supply chain disruption was in the growth of domestic infrastructure.
He said: “I think the main opportunity is around infrastructure growth and investment, and the transition to a green economy. There are a lot of options there…particularly in nuclear power.”
Severfield is the UK’s largest steel contractor, trading on the London Stock Exchange, and is hoping to benefit from Prime Minister Boris Johnson’s ‘big new bet’ on nuclear.
The government is pushing to green-light eight new reactors by the end of the decade – with Sizewell C set to benefit from taxpayer support as part of its latest funding model.
Earlier this year, Downing Street unveiled its supply security strategy – targeting a ramp-up in nuclear power generation from 7GW to 24GW over the next three decades – alongside a wider expansion in domestic energy production following Russia’s invasion of Ukraine.
Steel is a key component in the construction of nuclear power plants, and is also used in the production of wind turbines, solar panels and hydrogen power alongside North Sea oil and gas exploration and drilling.
Dunsmore concluded: “The green agenda could drive the long-term sustainability and viability of steel, as the product is endlessly recyclable.”
Commenting on current challenges in the industry, he also said the sector has been used to headwinds to navigate over the past five to six years since the UK voted to leave the European Union.
Severfield has sought to reduce its exposure to challenges over the past eight years through expanding its options for producing fabricated steel – to ensure it is not overly dependent on anyone supplier.
He explained: “We’ve spent a lot of time just broadening and diversifying our supply options and making sure that we can react to whatever happens,”
Severfield revels in record order book as demand rebounds from pandemic
Dunsmore was speaking with Morning Wire following the release of Severfield’s full-year results, which revealed strong revenues and profits powered by a record order book.
Revenues had risen 11 per cent to £403.6m, while underlying profit had also increased 11 per cent to £27.1m, with the company raising its total dividend seven per cent to 3.1p per share.
The firm has navigated the choppy waters of the pandemic, the energy crisis and Russia’s invasion of Ukraine thanks to a rebounding appetite in construction – enjoying a record UK and Europe order book totalling £486m – up from £393m in November.
Its orders includes a film studio, an industrial centre and the upcoming new stadium for Everton Football Club.
The company has kept its outlook of £31m in pre-tax profits next year unchanged, with £397m of its hefty order book deliverable in the next 12 months.
Severfield’s expansion into India has also gathered pace, with its order book growing to £158m, reflecting strong underlying demand for structural steel in India
The company has also revealed the successful completion of a new £50m revolving credit facility maturing in December 2026.
Its performance is a bright spot for a troubled industry, with GFG Alliance’s legal sojourn suffering another set back last week, after Sanjeev Gupta failed in his last-ditch attempt to get a winding-up order thrown out after Credit Suisse.
The Swiss investment group started insolvency hearings against the group’s companies last month.
This also follows the collapse of Greensill Capital last year – one of GFG Alliance’s biggest backers.
Meanwhile, Business Secretary Kwasi Kwarteng has also been weighing up the possibility of cutting steel producers out of network charges to help ease the pain of spiralling energy prices.
Harry Philips, investment analyst Peel Hunt, has maintained the investment group’s ‘Buy’ stance, with a target price of 100p.
He said: “Severfield has an evolving strategy that will enable it to be more readily aligned with growth – it has been already but it will become clearer to see; it has developed a good track record with infill acquisitions so more would be a plus; and India is on the cusp of making a significant step forward on the profit line that can accelerate value or partial realisation – the latter aspect is simply not reflected in the share price. “
Shares are up five per cent in the company on the FTSE AIM-All Share following today’s results, with the firm trading at 63p per share.