Britain’s top structural steel fabricator Severfield-Reeve was valued at £100m this week after a burst of buying rocketed shares above £5.
The shares stood at £4 when the firm last month announced that its profits for 1996, at £4.5m, were more than double those of the previous year.
Three years ago Severfield-Reeve was capitalised at only £7.5m. Brokers Hoare Govett forecast pre-tax profits of this sum in the current year.
Severfield-Reeve gained market leadership by investing in new equipment and increasing efficiency during the recession: it was then able to grab the biggest share of the market – 13% – when it ended.
Much of the competition was killed off. The company has now confidently opened a fourth production line in its 300sqft plant at Dalton, north Yorkshire. `This will bring down costs still further and so improve margins,’ said Peter Davison, finance director.
The plant supplies customers in the North and in Scotland. The South is covered by Rowen, a former competitor acquired by the group last year, whose margins still lag 10% behind Dalton. `Rowen is improving but will never match Dalton because its plant lacks the same efficiency,’ said Davison.
The enlarged group started the year with a £50m order book. Hoare Govett forecasts a 27% increase in turnover this year to £84m, rising to £98m next year when, the broker estimates, profits will be around £9m.
For the current year, Hoare looks for earnings per share up 57% at 25.6p and a dividend up 50% at 8p.