The share price of BlueScope Steel Limited (ASX: BSL) finished Friday's trading session last week 14% higher at $5 after the global steel producer announced a substantial upgrade to its profit guidance for the six months ending December 31 from $180 million to $230 million.
The upgrade was a significant increase and according to management was driven by earlier delivery of cost reductions, growth in Australian domestic despatches and better margins.
The 14% rally in the share price is understandable given the large upgrade to profit guidance, however, it is the 41% surge in the share price over the past six months which is even more impressive.
These gains are all the more outstanding when compared with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which has now lost 11% over the past six months.
Further gains to come?
Despite this 41% gain, the investment case for BlueScope arguably remains positive if one takes a longer term view of the company and the sector…
Over the past five years, BlueScope's share price is still down over 50% from around $12; while over the past decade the stock is down over 90% from a high of $51.53 set in early 2007! (source: CommSec)
The cause of this destruction in shareholder value is complex and includes both domestic and global industry structural changes, a heavily indebted balance sheet and cyclical issues.
With many of these problems having now been addressed by management, the outlook for the group is vastly improved.
Given the current analyst consensus forecast for the full year is earnings per share of just 22.9 cents (source: Thomson Consensus Estimates), it would seem to me likely that upgrades to the stock are coming and further share price appreciation could well be justified.
