The achieved FY16 margin was as an ambitious target when set in 2013, but is now seen as a staging post to the new aim of doubling PBT by FY20. Our revised estimates track towards this. With double-digit earnings progress expected (and a PEG below 1x), plus a rising dividend profile, Severfield-Rowen (LON:SFR) now clearly offers both income and capital growth attractions.
Ahead of expectations
Reported FY16 revenue and EBIT came in 3.1% and 10.4% ahead of our estimates respectively, with an achieved margin of 5.7%, towards the upper end of the target 5-6% range. Margin recovery has been a central focus over the last three years and has been unequivocally delivered.
Market conditions have been better latterly, but the margin gains have been substantially generated through actions taken to improve business processes and operational performance. After a cash inflow of over £12m in the year, Severfield ended FY16 in an £18.4m net cash position.
Lastly, the full year dividend of 1.5p (including a 1p final) also exceeded our 1p estimate, and there is a clear commitment to growing the payout going forward.
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