STU - Steel & Tube Holdings

[winner69]

What is STU's dividend policy? Seem hell bent on paying a final divie don't they

[winner69]

Analysts don’t think much of STU ...target prices range from $0.66 to $1.00

And Shareclarity DCF value is $0.70

[Dassets]

Who covers them? I didn't think anyone mainstream still covered them in any meaningful way. To me that is a lot of the attraction.

[winner69]

Who covers them? I didn't think anyone mainstream still covered them in any meaningful way. To me that is a lot of the attraction.

Just what the 3 on marketscreener have them at

If you were a broker analyst what target price would you put on STU?

[Balance]

Analysts don’t think much of STU ...target prices range from $0.66 to $1.00

And Shareclarity DCF value is $0.70

Probably the same analysts who were very dark on FBU at $4.00?

Thank you very much for their outstanding research and fine efforts, I say!

[Dassets]

As some of you may know I was an analyst many moons ago. But you can never take the anal out of analyst. In fact I think I covered STU back in the 90s. I would only put a target price on something if I had done a stack of work eg top down and bottom up. For this company 2-3 months full time work to establish then move to monitor/observe. Oh I forgot also write brokerage!!

I have a view based on a fraction of that full analysis. I think the company has made the moves that indicate the beginnings of a successful turnaround but early days. I think the balance sheet will have to be addressed at some point. I think the dividend "policy" needs a full re-think based on cashflow. I do not believe that the company has any realistic large acquisitions on the horizon. I think shareholders can signal to the board that support for this is weak/non-existent.

I think the price should be well north, no longer a value trap. I will disclose that I own stock.

[SailorRob]

Re post from earlier, still think valid, in fact the immediate future outlook may be slightly clearer now.

Still seems very cheap and appealing against the wider market particularly, only NZX stock I own.

Are these analysts running their own capital? Why do they need salaries from firms for doing research - if they're any good they'll be running their own and close friends and family money?

Do people realise how expensive the NZ50 is compared to any historical precedent...


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 is difficult - 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 (look at the CAPE). 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.

[Shepherd]

Great to see a slow but steady rise in the share price with not insignificant volumes.

[sb9]

Great to see a slow but steady rise in the share price with not insignificant volumes.

For sure, slow but steady price rise over past few days, wonder if we're due for a trading update anytime soon...

[Dassets]

I am hearing that local construction companies are going back to STU after saving themselves a dollar or two with Chinese product and are finding STU is busy servicing loyal clients. It will be interesting to see what happens with margins, I hope STU doesn't push it too hard and supports its loyal clients by not pushing margins too hard. This is an opportunity for STU to show the construction industry that it should stay with domestic suppliers long term, and therefore burn off these other suppliers. Any one with construction industry connections want to throw in your 2 cents worth?