BlueScope Steel Limited (ASX: BSL) shares have been in focus this week.
This has been caused by news that US President Trump has put tariffs on steel imports.
But that's not the only thing that investors have been watching out for. It is of course earnings season and BlueScope is one of the many companies scheduled to release its results.
Ahead of the release, let's take a look at what analysts are expecting from the steel giant.
BlueScope results preview
BlueScope is scheduled to release its half year results next week on 17 February.
According to a note out of Goldman Sachs, its analysts are expecting the company to post net revenue of $7,831 million and underlying EBITDA of $606 million.
As a comparison, the consensus estimate is for net revenue of $7,811 million and underlying EBITDA of $645 million.
Time will tell which forecast proves more accurate, but one thing for sure is that revenue and earnings will be down materially on the prior corresponding period.
During the first half of FY 2024, BlueScope recorded net revenue of $8,539 million and underlying EBITDA of $1,023 million. It also posted reasonably similar numbers for the second half of FY 2024.
Commenting on its expectations for BlueScope and scrap metal company Sims Ltd (ASX: SGM), Goldman said:
We expect both BSL & SGM to report close to trough EBIT in 1H, due to low Asian steel spreads impacting BSL's Aus steel earnings, and low scrap volumes and prices impacting SGM.
What's next?
The good news is that Goldman Sachs is forecasting a stronger than expected performance in the second half and will be looking for guidance that supports this. It said:
Outlook for 2H: we forecast 2H EBIT of A$526mn (vs. VA cons of A$406mn) based on a modest improvement in steel spreads; Aus Steel Products (ASP) blast furnace spread of ~US$205/t (vs. spot at ~US$180/t) and US Electric Arc Furnace (EAF) spread of ~US$360/t (vs. spot at ~US$350/t).
Should you buy BlueScope shares?
Goldman believes that the company's shares are great value and in the buy zone. Especially given its belief that the worst is now behind it. It said:
Compelling valuation and strong balance sheet: trading at ~0.7x NAV (A$31.3/sh), ~5x NTM EBITDA (vs. 15-yr average of 4-7x). The balance sheet remains strong with BSL in a net cash position and buying back shares on-market.
Painted steel & comp analysis implies BSL undervalued: ~40-50% of BSL's steel production is high EBITDA margin value add painted & coated steel. As a result, BSL's group margins are above US peers, yet BSL trades at a discount at ~5.0x EBITDA vs. the painted/coated peer group on ~7.5x. We think BSL's Australian & US painted & coated steel (>20% margin) business deserves to trade on ~8x EBITDA, in-line with the Aus and US building comps multiples.
Goldman has a buy rating and $26.70 price target on BlueScope's shares. This implies potential upside of 21% for investors from current levels.
