The City has largely turned a deaf ear to British Steel claims that its shares are under-valued, but US investors have long agreed. Since January they have quietly doubled their ownership of the company to an all-time high of 35%.
The Americans were still buying last week as stockbroker Cazenove was buying in for British Steel 4.65% of its shares for a total £144m.
Cazenove bid 155p a share, and the price ended the day up 10.25p at 159.5p, valuing the business at £3.25bn.
British Steel has shareholders’ consent to buy in up to 10% of its capital over any year, and it is likely to be back in the market soon to complete its quota.
While the City rates British Steel as an engineering stock, Wall Street places it against other US steel makers and thinks it good value in contrast.
The Americans are long-term buyers and are less concerned than British investors about the effect of the strong pound.
Last time around, the Americans certainly got it right. They piled into British Steel when its shares slumped to 46p after sterling left the European exchange rate mechanism, building up a stake of more than 30% before taking profits as the price headed for its peak 201p last year.
The buy-back, the company’s first, cuts the cost of capital employed in the business, and is expected to help earnings, up to 2% this year and 4% longer term.
British Steel has a strong balance sheet and its efficiency is increased by using some of its £785m cash surplus for the buy-back.
Despite weak steel prices and the German mark (which affects some 70% of revenues) exchanging at a damaging three to the pound, the company says it is trading profitably. British Steel has signalled that it will maintain last year’s 10p dividend, at a cost after the buy-back of around £190m, this year and next.
Brokers expect both to be tough for the company. Profits for 1996-97 were down 60% year-on-year at £451m, and City estimates for this year chiefly range between £100m and £200m. Broker Warburg predicts a £50m loss, expecting the company to trade in the red in the second half.
At this week’s annual meeting Brian Moffat, chief executive, was expected to update shareholders on trading.