STU - Steel & Tube Holdings

[BeeBop]

I picked them up last year at 61 cents based on some market trends: their on-line system, centralisation, stream lining etc. Then the basic metrics stacked up....if they didn't go anywhere, then at least they deserved to have a bit of a recovery. Growth in infrastructure spending and the current residential boom meant I held on to them. Got heaps of ribbing from people for buying them....one of my consultants (construction) gave me very minor grief....there monthly fee is well covered by my gains now!

[winner69]

Obviously I need to be more patient - that HUGE profit guidance hasn't even got the share price back to what it got to when they presented a little chart showing sales were picking up post lock down

Closed the week at 128

Seems a ase of keeping the faith .... and being patient I suppose

[Shareguy]

The stock is so undervalued in my opinion. Here is why I think so comparing the recent listing of Vulcan Steel.

Based on latest Steel and Tube guidance issued 19-11-21 of EBITDA $26.5m for the half year. Normally the second half is better so I think I have been conservative at full year EBITDA 22 of $53m.

Vulcan Steel was sold at full year forecast 22 of EBITDA x 8.8 which was A$7.10 or NZ $7.43 per share.

Steel and Tube and Vulcan Steel are comparable business so using the same multiples I come up with

S &T cap of $466.4m plus $25m cash at 31/5/21 =$491.4m

Which values Steel and Tube at $2.96 per share.

Note: Information was obtained from Vulcan prospectus and STU annual report. Vulcans share price has since increased to NZ$8.15 as at 19/11/21.

Vulcan has net debt including lease liability’s of NZ$314m.

“Ok I hear you” Vulcans business is best in class. My question is the share price difference between the two business justified when Steel and Tube is currently at $1.28 per share.

Disc. My largest position and have had 18 years in the Steel Industry including In Steel and Tubes executive team.

[winner69]

Hey shareguy. ..that Vulcan shares are up nearly 10% since listing …..STU gone nowhere in same time

[Muse]

The stock is so undervalued in my opinion. Here is why I think so comparing the recent listing of Vulcan Steel.

Based on latest Steel and Tube guidance issued 19-11-21 of EBITDA $26.5m for the half year. Normally the second half is better so I think I have been conservative at full year EBITDA 22 of $53m.

Vulcan Steel was sold at full year forecast 22 of EBITDA x 8.8 which was A$7.10 or NZ $7.43 per share.

Steel and Tube and Vulcan Steel are comparable business so using the same multiples I come up with

S &T cap of $466.4m plus $25m cash at 31/5/21 =$491.4m

Which values Steel and Tube at $2.96 per share.

Note: Information was obtained from Vulcan prospectus and STU annual report. Vulcans share price has since increased to NZ$8.15 as at 19/11/21.

Vulcan has net debt including lease liability’s of NZ$314m.

“Ok I hear you” Vulcans business is best in class. My question is the share price difference between the two business justified when Steel and Tube is currently at $1.28 per share.

Disc. My largest position and have had 18 years in the Steel Industry including In Steel and Tubes executive team.

I'd say the main reason comes down to cashflow conversion and dividend yield. If STU can lift its profitability, & improve its return on capital, it should lift its cashflow conversion and ability to pay dividends. I did a bit of work on this years ago. Looked at STU's long term multiples and found it's one year forward dividend yield stayed in a pretty tight band...point being that STU has always been priced on a dividend yield basis, not a multiple of earnings basis. Vulcan be trade at a higher multiple of earnings because it has better earnings to cashflow conversion & thus dividend payout. All things equal STU can't double its EBITDA multiple without halving its dividend yield, and I think for better or worse thats how the market prices it. So, as a shareholder, lets keep our fingers crossed management continue their momentum in improving the business.

[Shareguy]

Agree Winner. We have been there before with Rakon and look at it now. All I can think of is the analyst coverage is so out of date. Both Craigs and Forbar have less sales and profit for this year. I think a lot of investors take these research notes seriously.

With Vulcan listing it is the first time that a true comparison can be made. FBU only gave out some information so was hard to compare.

Im picking in light of the Vulcan float that we will see some decent coverage especially when STU gets back in the NZX50.

[Muse]

The stock is so undervalued in my opinion. Here is why I think so comparing the recent listing of Vulcan Steel.

Based on latest Steel and Tube guidance issued 19-11-21 of EBITDA $26.5m for the half year. Normally the second half is better so I think I have been conservative at full year EBITDA 22 of $53m.

Vulcan Steel was sold at full year forecast 22 of EBITDA x 8.8 which was A$7.10 or NZ $7.43 per share.

Steel and Tube and Vulcan Steel are comparable business so using the same multiples I come up with

S &T cap of $466.4m plus $25m cash at 31/5/21 =$491.4m

Which values Steel and Tube at $2.96 per share.

Note: Information was obtained from Vulcan prospectus and STU annual report. Vulcans share price has since increased to NZ$8.15 as at 19/11/21.

Vulcan has net debt including lease liability’s of NZ$314m.

“Ok I hear you” Vulcans business is best in class. My question is the share price difference between the two business justified when Steel and Tube is currently at $1.28 per share.

Disc. My largest position and have had 18 years in the Steel Industry including In Steel and Tubes executive team.

Few other bits and bobs. Vulcan acquired Sandvik pretty well and the stainless steel exposure is pretty attractive. Vulcan is way more diversified by location and captures more margin by owning its own transport fleet. I think these things just add up. Its less risky because of its diversification (less risk should in theory lower its discount rate) and is higher margin/better returns on capital which are the more corporate finance theory reasons behind the relative imbalance in valuation multiples. but my first point about dividend yields probably the key thing.

playing devils advocate here and against my own financial interests...but if STU is mainly priced on a yield basis, then it (and potentially vulcan) might be quite interest rate sensitive. investors over the medium term might start demanding a higher yield for it, and if yields have to rise then all things equal price has to fall. Obviously all things aren't equal and if management can continue to grow the business share prices can still rise, but a headwind blunting some of those potential gains will be a rise in dividend yield expecations.

[SailorRob]

Obviously I need to be more patient - that HUGE profit guidance hasn't even got the share price back to what it got to when they presented a little chart showing sales were picking up post lock down

Closed the week at 128

Seems a ase of keeping the faith .... and being patient I suppose

Wouldn't it be smarter to wish for lower share prices after having an incredible announcement? What am I missing here.

If I owned a 3 part share of a prospective gold mine, once we struck gold I'd be really happy if my 2 business partners offered to sell me their parts for a lower price than before striking gold.

Everyone else on this thread seems to think the very opposite.

[SailorRob]

And imagine if I could use the businesses money to buy out other partners rather than my own external capital. That would be incredible.

[Muse]

Wouldn't it be smarter to wish for lower share prices after having an incredible announcement? What am I missing here.

If I owned a 3 part share of a prospective gold mine, once we struck gold I'd be really happy if my 2 business partners offered to sell me their parts for a lower price than before striking gold.

Everyone else on this thread seems to think the very opposite.

Thats cuz we all got sharesight and want to see them paper gains go higher.

But your point well taken.