Australian manufacturing is dead, isn’t it? Not according to analysts looking at Bluescope. They are starting to see value in the stock, which I suppose had to appear some time, given its dramatic fall. Merrill has a buy on the stock and does not see thet ATO dispute as an impediment to that judgement :
Current regional steel margins (spreads) are ~A$50/t higher than FY11. This input combined with the improved cost structure under 1 blast furnace and despite a 10% weakening in domestic volumes should drive a currently positive EBITDA annualised run rate in the Australian Steel (“CIPA” division). We estimate this run rate could be ~A$250m (FY11 reported $58m loss). Based on a 5x EBITDA multiple (35% discount to regional peers) current trading conditions would justify a 55c valuation.
We believe the current share price reflects a downside scenario where this return to profitability by CIPA does not eventuate. We estimate the value of the stock post a Port Kembla complete shutdown at 31cps. The company is yet to report earnings under the new structure (1 blast furnace) and this is the most significant risk to our view.”
Macquarie also sees positives in the reconstruction of the balance sheet:
We retain an Outperform. While this dispute is a negative for the company from both a short-term cashflow and a management distraction perspective, the investment thesis remains the return to a profitable run rate of the Coated and Industrial Products division and the stabilisation of the balance sheet.
The question is has the stock been oversold? Merrill has a price target of 44c and Macquarie 59c.