MENU

Broker thinks BlueScope Steel Limited could announce a profit upgrade

Steel products maker BlueScope Steel Limited (ASX: BSL) may be one of our best performing stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) but it probably has more room to climb as not all the good news is reflected in its share price.

This is despite the stock surging 41.6% over the past 12 months as it added another 3.5% to $16.10 in late afternoon trade today. In contrast, the top 200 stock index is barely in the black in the past year.

What this also means is that BlueScope may have to upgrade its profit guidance pretty soon, according to UBS.

The broker noted a surge in the spread between steel prices in the US and elsewhere after US President Donald Trump imposed steel import tariffs on most of the world.

“Steel spreads in the US are surging. We continue to see strong commercial and industrial demand in the US, with a view that we could be at the start of a long-term infrastructure up-cycle,” said UBS.

“However, with spreads at US$500/t, a level not seen in perhaps 8-10 years, investor hesitation and pre-emption of a pullback is likely to lift in coming months.”

With UBS tipping that the multi-year highs in steel spreads will be sustained, BlueScope’s FY18 earnings guidance is starting to look way too conservative as it has assumed a spread of just US$325 a tonne.

Around a third of BlueScope’s earnings comes from its US-based North Star operations.

But even if the spreads were to narrow, there is still good upside in the stock as the broker’s bullish call on BlueScope is not premised on US steel spreads but the overlooked growth opportunity in Asia.

What’s more, BlueScope continues to trade at a meaningful discount even with the strong share price run as the stock is on a compelling 5.9 times FY18 enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple when its global peers are trading at a 6.5 times multiple.

The bullish outlook for steel also bodes well for iron ore producers like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

The price of iron ore has fallen by around 19% since February but I think it will start to find support as the winter construction season picks up. After all, China’s infrastructure building plans are more ambitious than the US.

But it’s not only BlueScope that is looking well placed to outperform the market. The experts at the Motley Fool have picked their three favourite large cap stocks for 2018 that is well placed to deliver strong returns in the year ahead.

Click on the link below to get your free report on these stocks and to find out why they should be on your radar.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, BlueScope Steel Limited, and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.