STU - Steel & Tube Holdings

[CraftyBeer]

Also topped up a bit. Now need $1.45 to break even. Looks like we were both caught in the freefall a couple of years ago.

Also nearly at breakeven following years of downtrend after buying more at .59 in early Sep last year. Hoping some of the FBU bounce will also apply to STU at some point.

[SailorRob]

Well people, the way I see it, which is very different from Craig's impressive mumbo jumbo, is that they have averaged a Net Profit of 17.4 million/year over a period of 13 years which includes a once or twice in a lifetime global recession. Now granted with a lot of those earnings they have retained them and destroyed them in spectacular fashion. They also paid out 15 million a year average in dividends and then took back a lot of money in an equity raising, net of which the dividends would have averaged 9 million a year. They at times employed significant leverage to produce these cash flows. The top-line growth over this whole period has been non existent.



So looking forward, which is I believe more difficult that Craig's would have you think - If we take one case and I'm going to call it 'best conservative case' and assume that revenues remain the same going forward, margins remain similar and thus net profit remains the same averaged over time. BUT this time they don't destroy any retained cash, they don't employ it well either, just for every $1 retained only $1 of value is created. Under this scenario we can now try and assume a multiple for this profit.



Now when deciding a multiple, we see that the NZ50 PE according to S&P, is about 45. Yes this will be somewhat because of COVID earnings but regardless it's incredibly high, all time high in fact. People will say 'yes but with the discount rate/bond yields/interest rates so low' and I will think hmmm why are they so low. Mostly because we're in the middle of another massive recession and have had abysmal economic growth really since 2007 aside from what a huge population increase has given us. I digress, but I'm not at all comfortable that we really have conditions that warrant higher than long term average PE's.



So for regular business like Steel and Tube that has kicked it's old habits but still just plodding along... It is a duopoly and now has no debt, so even if it performed as it has in the past, it's now all equity and could be goosed if that made sense in future... Hell I'm not giving it any more than 15. So say 17 million times 15 is around 250 million. There are 166 million shares so that's $1.50.

So in my opinion, anyone that thinks it is worth more than that (and I may be one of them) is speculating, probably on multiple moving balls.



Now I can do a worst case and base that on exact historical performance (it can get worse than that too) and I can do a best case in which I would attribute at least average capital allocation skills, say retained earnings reinvested at 7%, some leverage applied, growth at least in line with population growth. But I'll just stick with my case above and I can tell you I'll probably sell early as a result but I'm totally happy with that as if i don't then I may as well go to the Casino.



This is why I was ranting so hard about it when it was in the 50's. It was massively undervalued.


I see a lot of technical analysis mentions on this thread, I don't know much about it but hasn't it just formed a text book 'cup and handle' from the beginning of 2020?

[nztx]

Okay - thanks for that SailorRob, but many of the punters may wish to see some cash land in their paws
before deciding whether the Nuts Bolts & Steel Biz with more curves, bumps, joins, holes & welds in the past
than Auckland's Water Supply Service is considered sexy enough to encourage them to poke cash STU's way ..


PE is one thing, but Div Yield something better than a big fat 0 is more inspiring in today's times..

SP is basically back to just under a certain point pre covid in the earlier year, back across the C19 dip
so at this point just recovering some lost ground

It defies comprehension how this outfit has managed to suffer so much carnage in Stock writedowns
impairment & provisioning in the recent past.. there really cant be much left standing to impair or write off
on the balance sheet ..

[SailorRob]

Okay - thanks for that SailorRob, but many of the punters may wish to see some cash land in their paws
before deciding whether the Nuts Bolts & Steel Biz with more curves, bumps, joins, holes & welds in the past
than Auckland's Water Supply Service is considered sexy enough to encourage them to poke cash STU's way ..


PE is one thing, but Div Yield something better than a big fat 0 is more inspiring in today's times..

SP is basically back to just under a certain point pre covid in the earlier year, back across the C19 dip
so at this point just recovering some lost ground

It defies comprehension how this outfit has managed to suffer so much carnage in Stock writedowns
impairment & provisioning in the recent past.. there really cant be much left standing to impair or write off
on the balance sheet ..

I fear these punters are the ones who actually just want to see the share price start rising first. That seems to be all that governs opinion on businesses.

[winner69]

Sailor Rob makes some good points but I feel many don't grasp what he saying.

So I have charted STU's Free Cash Flow over the last 10 years - both annual figures and a cumulative figure from 2011 are shown. Free Cash Flow is Operating Cash Flow less Investment Cash Flows (excluding cash for business acquisitions)

Demonstrates what Rob is essentially saying (I think) in that STU has generated solid cash flows over the years - even through the years of turmoil

Over the 10 years Free Cash Flows have totaled $162m. In the same period they've spent $74m on new businesses and paid $121m in dividends. In addition raised $94m new capital from shareholders.

So I'm on same page as Rob in that the current market cap of $160m odd and based on likely cash generation and likely dividend flows STU is pretty cheap

[Balance]

I fear these punters are the ones who actually just want to see the share price start rising first. That seems to be all that governs opinion on businesses.

Has always been the case - nothing new there!

Rising share price = great company & great management.

Falling share price = lousy company & bad management.

BUT - there in lies the opportunities to pick turnaround stocks and make serious gains.

Eg. Diligent at 28c and Serko at 29c! Or FBU at $3.20.

[SailorRob]

Sailor Rob makes some good points but I feel many don't grasp what he saying.

So I have charted STU's Free Cash Flow over the last 10 years - both annual figures and a cumulative figure from 2011 are shown. Free Cash Flow is Operating Cash Flow less Investment Cash Flows (excluding cash for business acquisitions)

Demonstrates what Rob is essentially saying (I think) in that STU has generated solid cash flows over the years - even through the years of turmoil

Over the 10 years Free Cash Flows have totaled $162m. In the same period they've spent $74m on new businesses and paid $121m in dividends. In addition raised $94m new capital from shareholders.

So I'm on same page as Rob in that the current market cap of $160m odd and based on likely cash generation and likely dividend flows STU is pretty cheap

Thanks winner, yes that's it. Amazing cash flow generation when compared to current market cap. Some of that cash has been squandered of course but hopefully that will change. It is and always has been a cash cow, they have just had issues spending it wisely.

[SailorRob]

I did similar analysis to you winner, I accounted for every dollar in and out over 13 years from cash flow statements and made sure they roughly compared to earnings. I used earnings in my post above but it was really done on free cash flows over and above what was needed to be reinvested in the business.

[winner69]

Thanks winner, yes that's it. Amazing cash flow generation when compared to current market cap. Some of that cash has been squandered of course but hopefully that will change. It is and always has been a cash cow, they have just had issues spending it wisely.

I think you once said no matter how useless management is the business still generates cash ....chart shows that

You’d think management will get better ....some are already enamoured with the new CFO

[SailorRob]

I think you once said no matter how useless management is the business still generates cash ....chart shows that

You’d think management will get better ....some are already enamoured with the new CFO

Exactly right. Plus it was selling for less than net working capital. The value of the steel on the shelf after subtracting all liabilities was more than the company was selling for. Property, plant, equipment and brand all for free.