Blue Scope Steel (BSL) Share Trading Recommendation

Submitted by Craig Strzelecki on 27 February, 2007 - 07:24

Blue Scope Steel (BSL) have an upgraded share trading recommendation of Outperform wth a 12-month share price target of $10.50 from analyst Macquarie Research Equities (MRE). The upgrade comes after MRE's bullish view on Hot Rolled Coil (HRC) prices. Shares in BlueScope Steel (BSL) have tracked lower to give back yesterday's gains after investors cheered the 1st half 2007 numbers. Management yesterday announced Net Profit After Tax (NPAT) of A$388m, up 24% on last year, and declared a higher-than-expected fully franked final dividend of 21 cents. MRE have observed that strong regional steel prices have helped to drive earnings and free cashflow. This is likely to continue into 2H07 despite the seasonally weak third quarter. Most of the BSL businesses helped to contribute to the improved profit result. However, the areas that improved the most compared to MRE's expectations were the Coated Products businesses in Australia and Asia. The fully franked dividend of 21 cents per share was also up on expectations, and given the strong free cashflow generation of the business MRE expect capital management to be a feature going forward. While the total business performed well, the real driver of future earnings remains the hot rolled coil (HRC) price. HRC prices drive earnings in the Hot Rolled Products Australia division and this drives nearly 70% of total BSL earnings. When HRC prices are high, earnings growth is positive and free cashflow generation is strong. To be bullish on BSL, you need to have a positive view on the Asian steel pricing environment. At this stage, MRE forecast that prices will remain at higher levels for longer with some upside risk in the medium term.

BlueScope Steel Limited is listed on the Australian Stock Exchange (ASX) under stock code BSL. You can view their investor website here. Find out the meaning of the recommendations in this primer. BSL was listed on the ASX on 15 July, 2002. Graham Kraehe is the chairman of BlueScope Steel and the Managing Director is Kirby Adams. BlueScope Steel is the leading steel company in Australia and New Zealand, supplying a large percentage of all flat steel products sold in these markets. They specialise in the production of flat steel products, including slab, hot rolled coil, cold rolled coil, plate, tin plate and value-added metallic coated and painted steel products. Our steelworks at Port Kembla in New South Wales is the largest steel production facility in Australia and one of the world's lowest-cost producers of steel products. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BSL. Check your charts and good luck with your share trading!