BlueScope Steel, the country’s biggest steelmaker, says second-half earnings could be up to 83% higher because of higher world steel prices, driven by demand for buildings and automobiles in China.
Unaudited underlying profit for the six months to June 30 may rise to $474 million, from $259 million in the back half of the 2007 financial year, according to a trading update from the company yesterday.
CEO, Paul O’Malley, who took over late last year, said in a statement to the ASX that BlueScope expects a "good start” to next year’s full-year profit, assuming prices hold their gains.
Thanks to demand from China world steel prices are at their highest in three years.
Mr O’Malley said the expected earnings improvement "is largely due to continued strong demand and higher global steel prices".
He said: ”Unaudited underlying profit for the third quarter was $169 million and "Our current expectation for NPAT for FY08 – fourth quarter is for NPAT of a similar order of magnitude to the FY08 first half result of $305 million".
But BlueScope fell as much as 23c, or 2.1% after the update and traded around $10.81 at the close, down 19c on the day or just under 2%.The shares are up around 12% so far in 2008, compared with a 8% fall in the ASX200 index.
Of concern to investors is the slowdown in domestic demand being engineered by the Reserve Bank and expectations that BlueScope will have to pay more for steel making raw materials from July 1 under some supply contracts. These could include coking coal and perhaps some iron ore. As well the stronger Australian dollar is having a negative impact on earnings.
"Looking further out, assuming global steel prices hold, we expect a good start to FY09 notwithstanding the substantial increases in iron ore, coal and scrap prices, effective from 1 July 2008. In the second half of FY09, the Company will embark on the major Blast Furnace No 5 reline and sinter plant upgrade.
"These two major engineering projects will impact earnings in the second half, but thereafter should deliver additional longer term cost and volume benefits,” Mr O’Malley said.
“Operationally and on safety measures, the performance across all our businesses continues to be outstanding. In addition, despite the IMSA Steel Corp acquisition having taken our gearing to around 40 percent in February this year, we have a strong balance sheet and with stronger second half results, we now expect to be within our optimal gearing range of between 30 to 35 percent by 30 June 08," Mr O’Malley said..
“In Asia, we are seeing improved earnings performance, particularly in Thailand, while in North America, our acquisition of IMSA, in particular the Steelscape business, is already exceeding expectations.
“The continued stronger Australia dollar is having a negative effect on earnings and unfortunately this trend is likely to continue."
I suppose the reason why shares in AGL Energy rose yesterday after a trading update is because there was no bad news.
AGL Energy confirmed its earnings guidance for the 2008 financial year of an underlying net profit of up to $360 million.
AGL also said it expects earnings before interest tax depreciation and amortisation (EBITDA) of between $830 million and $875 million for 2007/08.
In its statement to the ASX AGL said: " On 15 October 2007, AGL Energy Limited (AGL) advised that it anticipated FY08 underlying net profit after tax of $330 – $360 million. This was reconfirmed in December 2007, and again in February 2008 following release of results for the six months ended 31 December 2007.
"AGL today reconfirms that it anticipates FY08 underlying net profit after tax to be in the range $330 – $360 million and EBITDA to be in the range $830 – $875 million. This is based on a review of earnings for the year to date, including preliminary results for April 2008, and assumes average weather conditions for May and June and no unexpected circumstances for the remainder of the financial year.
"AGL’s businesses have performed well since 31 December 2007 with earnings for the second half influenced by a strong performance from Torrens Island Power Station, predominantly due to a sustained period of extreme weather conditions in South Australia in March.
"However, this has been partly offset by a lower than expected contribution from AGL’s 32% interest in Loy Yang A Power Station, mainly due to lower than anticipated electricity pool prices in Victoria over the summer months.
"AGL also advises that the increased level of sales and marketing activity that it has previously foreshadowed is showing encouraging results with a net gain in customer account numbers since 31 December 2007.
"AGL confirms that it anticipates that the FY08 dividend will be in the range of 52 – 55 cents, fully franked."
That update last October was actually a large earnings downgrade (sort of ignored by the company in yesterday’s statement) which saw the shares drop sharply from around $16.40 to about $12, before they again tumbled earlier this year to a low of $10.20.
They rose 35c yesterday to $13.57, so they’ve been a solid performer in the past two months. The October downgrade led to then CEO, Paul Anthony departing and being replaced by Michael Fraser.
And Britain’s BG Group has been told that it must make a cash bid for NZ’s Contact Energy a month after its offer for Contact’s majority owner, Origin, goes unconditional.
This is part of a NZ Takeovers Pane
