The full-year results from BlueScope Steel Limited (ASX: BSL) will give investors plenty of reasons to cheer this morning although the most encouraging thing about the announcement may be its ability to benefit from the current economic turmoil.
Just as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is taking a 0.3% hit in early trade due to rising tensions between the US and Turkey, the share price of the steel products manufacturer jumped 3.6% to $18.51.
Management posted a better-than-expected 15% increase in underlying earnings before interest and tax (EBIT) to $1.27 billion after its second-half EBIT surged to its best in 10 years – well ahead of its already upgraded guidance in May of around $680 million.
BlueScope has more cash than it knows what to do with so it's increasing its share buy-back program to $250 million, which will be completed in the current half, and it's upping its final dividend by 60% to 8 cents a share.
That will hardly excite income investors but BlueScope is one of the rare companies that enjoys a "Trump Premium".
The US President Donald Trump has slapped tariffs on a range of products, including steel, from several countries and these countries have imposed similar measures on US imports. This is bad news for companies exposed to global trade, which also include the outperforming miners like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), but not BlueScope.
The Trump tariffs have driven the price of steel in the US higher and BlueScope has a material exposure to that market through its North Star mill. Australia is also permanently exempt from these tariffs and the group's US and Australian steel products businesses (which account for 80% of total EBIT) are performing strongly.
What's more, the trade tensions are driving up the US dollar and the Aussie has hit an 18-month low under US73 cents.
I think the US dollar will stay stronger for longer in this volatile climate and the exchange rate will bolster BlueScope's translated earnings.
Operationally, the good times are expected to roll on. Management is tipping a 10% increase in underlying EBIT for the current half year over 2HFY18, which implies a figure of $819.5 million.
But it isn't all good news. BlueScope's building products division recorded a 12% drop in underlying EBIT for the year over FY17 due to slower activity in some Asian nations and margin pressure.
While the overall demand and pricing outlook for BlueScope's products looks bright, it will also likely experience rising cost pressures.
At least investors won't have to worry too much about valuation even after the stock's 30% run over the past 12 months, as BlueScope is still trading on a reasonably attractive FY19 price-earnings (P/E) multiple of around 10 times.
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