Severfield-Rowen's (LON:SFR) H117 results were well ahead of the previous year; margin performance and order book development cause us to raise our FY17 profit expectations. This combination has also proved to be a catalyst for share price outperformance following the results. Revenue growth and further margin development towards management’s stated aim of doubling FY16 PBT by 2020 can sustain further progress.
Margins and order book ahead in H1
H117 results (on 22 November) demonstrated that margin development in recent years has been well founded and further progress was achieved in the period, moving towards a target of doubling PBT by 2020. Given that revenue was only up slightly, a 220bp EBIT margin uplift (to 7.0%) was the standout feature of the first half. As previously announced, the UK order book has risen to a six-year high, pointing to an increasing rate of top-line growth from here. The Indian JV performance was stable y-o-y and the prospect of moving into profitability (from new business mix and debt reduction) is nearing. A good cash performance and a 40% increase in the interim dividend were further positives in the results, with scope for more progress.
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