STU - Steel & Tube Holdings

[winner69]

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.

If you did same chart for Synlait it looks completely different ...many years of cash burn

But punters seem happy to look through that

[BlackPeter]

If you did same chart for Synlait it looks completely different ...many years of cash burn

But punters seem happy to look through that

To be fair - Synlait is building up a factory (or two or three) while STU is basically a boring old retailer with a habit to burn money in case they have too much of it ...

Amazing how many new four wheel drives they bought for their staff after the Christchurch earthquakes ... though probably time to replace them now, i.e. there might be additional unplanned costs in the wings ...

Apart from that - I agree that both companies do have management teams whose performance at times was wanting and boards which both managed to make significant mistakes to be paid for by shareholders, and I agree as well that STU might have a chance to return their earnings towards their long term average EPS in the years to come ... which would be good for holders. I guess you hope they wrote off enough ... and they probably have currently enough space in their cupboards to store a new set of skeletons before they start to overflow again.

Not really convinced of the quality of board or management, but probably businesswise currently in the right spot.

Discl: Hold a (really) small parcel ...

[nztx]

Looking ahead short term - did someone point to lower turnover ?

To reach therefore higher GP & bottom line - that tends to point to higher margins..

Is that possible in today's times & competitive environment or wishful thinking ?

STU have some good brands & businesses in the fold.

Many initiatives, including co-locating into shared STU premises should have been done
long ago (while Board were apparently dreaming at the helm) and not after or forced
as a result of things hitting the fan badly ..

The proof in performance & how well Directors ultimately pull things together
to regain where they were at a few years back before all the carnage, and better
above those levels will be what watchers will be looking for.

We have already had one false start on recovery tracks - with interim div, then
things abruptly slid backwards the next half with no next Dividend paid.

The current Board & many of the top brass were also onboard through the carnage
of recent years, so they also need to now prove they are up to what is expected of
them in clawing STU back out of the hole and staying there with solid performance

They have already seen wiped out in the watch of many of them - over half the
value STU had in Shareholder Funds, all of the Cap Raise a few years back
which resulted in the forced leaning down to get to the current slimmer beast, so
their credibility is very much on the line & current times suggest there is no
room for repeats or excuses on why they should be capable of delivering up
and substantially keeping STU's performance at or above those enhanced levels ..

The ultimate challenge - Can STU's Board & Top Brass pull things above the $1.75 SP
that was at one point on the table - which they didn't like before it was withdrawn ?

IMO - that is the line in the sand which STU's Board & Management must reach or exceed
and hold to ultimately prove they are worthy of their seats & positions with STU

If not, then new fresh talent required which is more vibrant & capable of performance
execution & delivery without further carnage.

After all, how difficult is it selling reasonable quantities of nut bolts & steel etc at a reasonable
margin and getting it closer to perfection than the beast has managed in the past how many
years it has been in existence ?


Discl: hold a parcel

[SailorRob]

Looking ahead short term - did someone point to lower turnover ?

To reach therefore higher GP & bottom line - that tends to point to higher margins..

Is that possible in today's times & competitive environment or wishful thinking ?

STU have some good brands & businesses in the fold.

Many initiatives, including co-locating into shared STU premises should have been done
long ago (while Board were apparently dreaming at the helm) and not after or forced
as a result of things hitting the fan badly ..

The proof in performance & how well Directors ultimately pull things together
to regain where they were at a few years back before all the carnage, and better
above those levels will be what watchers will be looking for.

We have already had one false start on recovery tracks - with interim div, then
things abruptly slid backwards the next half with no next Dividend paid.

The current Board & many of the top brass were also onboard through the carnage
of recent years, so they also need to now prove they are up to what is expected of
them in clawing STU back out of the hole and staying there with solid performance

They have already seen wiped out in the watch of many of them - over half the
value STU had in Shareholder Funds, all of the Cap Raise a few years back
which resulted in the forced leaning down to get to the current slimmer beast, so
their credibility is very much on the line & current times suggest there is no
room for repeats or excuses on why they should be capable of delivering up
and substantially keeping STU's performance at or above those enhanced levels ..

The ultimate challenge - Can STU's Board & Top Brass pull things above the $1.75 SP
that was at one point on the table - which they didn't like before it was withdrawn ?

IMO - that is the line in the sand which STU's Board & Management must reach or exceed
and hold to ultimately prove they are worthy of their seats & positions with STU

If not, then new fresh talent required which is more vibrant & capable of performance
execution & delivery without further carnage.

After all, how difficult is it selling reasonable quantities of nut bolts & steel etc at a reasonable
margin and getting it closer to perfection than the beast has managed in the past how many
years it has been in existence ?


Discl: hold a parcel

Some great points, but the board and management should absolutely not be trying to pump the share price back up. Unless they are planning to raise more equity they should be completely agnostic to the share price, or if they are truly smart they should really try to keep it way down.

I want to make money out of my position in STU and a rising share price will make me much less money compared to what I will make if the share price stays low while the business continues to recover.

The best scenario is the share price stays well under intrinsic value for a very long time (20 years would be wonderful). This way I can increase the proportion of the cash flows the business is spitting out that goes into my pocket. I can continue to purchase shares with my own money, with STU dividends (very inefficient), and they can do the same with buybacks (best option). If the share price rises quickly to or above intrinsic valve then I will have to sell and it will just be a one hit wonder and I will have to re allocate capital somewhere else.

No rational investor wants the share price of a good business they own rising above intrinsic value unless for some reason they want to convert an equity stake into money losing cash.

[nztx]

Some great points, but the board and management should absolutely not be trying to pump the share price back up. Unless they are planning to raise more equity they should be completely agnostic to the share price, or if they are truly smart they should really try to keep it way down.

I want to make money out of my position in STU and a rising share price will make me much less money compared to what I will make if the share price stays low while the business continues to recover.

The best scenario is the share price stays well under intrinsic value for a very long time (20 years would be wonderful). This way I can increase the proportion of the cash flows the business is spitting out that goes into my pocket. I can continue to purchase shares with my own money, with STU dividends (very inefficient), and they can do the same with buybacks (best option). If the share price rises quickly to or above intrinsic valve then I will have to sell and it will just be a one hit wonder and I will have to re allocate capital somewhere else.

No rational investor wants the share price of a good business they own rising above intrinsic value unless for some reason they want to convert an equity stake into money losing cash.

but if it suddenly turned around to be so good with rising SP, intrinsic value should rise, along with dividends (hopefully imputed as well)
and so why would you entertain selling it to pocket the 'money losing cash' ?

I think STU's board need to demonstrate that they've turned a lemon into something worth keeping rather than trading
and they've finally woken up with fingers firmly on the pulse ..

[SailorRob]

but if it suddenly turned around to be so good with rising SP, intrinsic value should rise, along with dividends (hopefully imputed as well)
and so why would you entertain selling it to pocket the 'money losing cash' ?

I think STU's board need to demonstrate that they've turned a lemon into something worth keeping rather than trading
and they've finally woken up with fingers firmly on the pulse ..

Yes as long as there was a discount to intrinsic value you wouldn't sell. I meant if the SP rose to or above intrinsic value.

I'd still rather the business started to do really well, the intrinsic value increased and the SP fell like a rock but that wont happen...

[Ferg]

One of my clients *could* be a large customer for STU but never will. Why? STU are too expensive. My client imports 20 tonnes at a time from China, Vietnam and India including flat rolled coil of varying thickness, s/s fixings, square and rectangular hollow sections and all manner of bits and pieces. STU get the emergency orders for low volume items where we don't quite match supply with demand, but that would be less than 1% of the total value spent on steel. It would be good to support local but the cost of buying locally cannot be supported. My fear with companies like STU is "what is the point of difference?" versus buying in bulk offshore? Maybe someone else can answer that but I can't given the quality of the offshore product is good. I'm not sure how much of STU sales is retail versus local manufacturers....or what their strategy is for various market segments but maybe we don't fall into their target market...?

Disclosure: became a holder post-lockdown but sold all in December.

[sb9]

Someone's showing their hand and keen to accumulate...

[SailorRob]

One of my clients *could* be a large customer for STU but never will. Why? STU are too expensive. My client imports 20 tonnes at a time from China, Vietnam and India including flat rolled coil of varying thickness, s/s fixings, square and rectangular hollow sections and all manner of bits and pieces. STU get the emergency orders for low volume items where we don't quite match supply with demand, but that would be less than 1% of the total value spent on steel. It would be good to support local but the cost of buying locally cannot be supported. My fear with companies like STU is "what is the point of difference?" versus buying in bulk offshore? Maybe someone else can answer that but I can't given the quality of the offshore product is good. I'm not sure how much of STU sales is retail versus local manufacturers....or what their strategy is for various market segments but maybe we don't fall into their target market...?

Disclosure: became a holder post-lockdown but sold all in December.

Yes very good points. Also should mention that I have it on good authority that the Whangarei branch treat customers as if they have completely ruined their day by walking in. I have a friend who took his business elsewhere even though it was more expensive. When you are in a commodity business and you cant even compete with lower prices that is pretty bad.

[Balance]

Someone's showing their hand and keen to accumulate...

Powering on towards $1.00.

I suspect we will see STU report towards top end of guidance in H1, keeping plenty to provide another profit upgrade in 3 months' time.