‘Frankly we’ll move on’: Ryan Stokes dashes BlueScope acquisition hopes
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More news: SGH managing director Ryan Stokes has turned away from plans to acquire BlueScope’s Australian assets after a consortium bid with US-based Steel Dynamics was rejected and is reluctant to increase the group's leverage in order to offer a higher price.
Responding to a question from Jefferies analyst Ramoun Lazare on a call following the release of half-year earnings, Stokes said “ultimately, if the [BlueScope] board, but really the shareholders, don't see value in our proposal, then, frankly, we'll move on”.
He said there are “other compelling opportunities for SGH” in the industrials sector that have “Australian centric positions of privileged assets and scale, but we also need to see an opportunity for us to generate a return on our capital”.
Responding to a question from E&P analyst Harry Saunders, SGH chief financial officer Richard Richards suggested that the industrials group was not willing to increase its bidding price because it would require a leverage ratio uncomfortably above its 2.5x target.
"I think we've taken the business to over 3.8 at times... it will be transaction specific, but in terms of covenant headroom and bank support, I suspect the eagerness of the banks to finance us is probably going to exceed our board's willingness to go to that level," Richards said.
"When you're talking three times... we would be comfortable, but with a very clear plan as to what we're going to do to bring it back down to 2.5x and that's, that's the absolute strength of the group."
At the end of January, Steel Dynamics chair and CEO Mark Millet told analysts "the offer is compelling" and said BlueScope's commentary in "subsequent public releases regarding the proposal has to be seen as very disappointing".
What they said: “We feel the offer at that $29 dividend adjusted price is full and fair, and probably say that the burden at hand versus the execution risk is long, where we think that the offer should be seen as compelling,” Stokes told analysts.
”But ultimately it's a decision for shareholders, or seems to be in shareholders hands.”
SGH delivers 2% increase in half-year net profit
The news: The Stokes family-controlled investment conglomerate SGH, formerly named Seven Group Holdings, reported a 2% increase in half-year underlying net profit to $518 million mostly driven by Boral's performance.
The numbers: This topped average forecasts of $509 million, according to Visible Alpha.
Revenue came in at $5.4 billion, with EBIT margin expanding by 30 basis points to 15.6% "underpinned by the disciplined execution of the SGH Way operating model, driving EBIT margin expansion led by Broal and WesTrac".
The company declared an interim fully franked dividend of 32 cents per share, up from 30 cents a year earlier, and above consensus estimates of 30.82 cents per share.
The context: WesTrac revenue was down 6% while EBIT was mostly flat whereas Boral revenue lifted 7% and EBIT was up 10%. Coates revenue is showing "strong sequential recovery" while Beach Energy showed "made material progress and met
What they said: "The ability to generate strong cash flows was demonstrated by EBITDA cash conversion lifting to 98%, and operating cash flow up 32%. This enabled continuing deleverage to 1.9x, below our target range, while also supporting investment into our businesses through maintenance and growth capex," SGH managing director and CEO Ryan Stokes said.
The source: ASX
