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ASX:BSL
BlueScope Steel Ltd
Investment Summary
The fund managers believe BlueScope Steel Ltd is poised for long-term growth despite recent fluctuations in share price. They emphasize that strong EBITDA margins and a solid balance sheet underline BlueScope's resilience in the U.S. steel market. Recent expansions, including a significant 850ktpa capacity boost at the North Star facility, along with the acquisition of major companies like Coil Coatings and MetalX, are seen as pivotal for future profitability. The market continues to undervalue BlueScope's unique asset base, especially given its strong performance in a consolidating industry. Even amid short-term challenges, the company’s strategy of focusing on operational efficiencies and enhancing its U.S. footprint is expected to yield significant returns. With steel prices having the potential to stabilize and increase, there is optimism regarding BlueScope's capacity to deliver shared value through ongoing buyback programs and expansions. Overall, fund managers remain bullish on BlueScope’s outlook, citing its unique positioning in a recovering steel sector.
Commentary From The Managers
L1 Capital
31 Dec 2024
$18.69
- BlueScope Steel shares underperformed, down 16% due to weak global steel markets.
- Asian steel spreads remain depressed, impacted by excess Chinese steel production and elevated exports.
- U.S. steel markets have weakened, affected by uncertainty regarding the upcoming government administration and inflation.
- BlueScope announced a target to deliver ~$200m in cost savings, highlighting a focus on productivity improvements.
- The company aims to grow its U.S. business with the expansion of the North Star steelmaking facility and further investment.
- L1 Capital believes the market significantly undervalues BlueScope’s asset base and the resilience of the U.S. steel sector.
Blackwattle Investment Partners
31 Dec 2024
$18.69
- Bluescope (BSL): Underperformance due to the collapse of USA Northstar Steel spreads (-22%), a proxy for EBIT per ton generated.
- Blackwattle Investment Partners continues to see Bluescope positioned well for a recovery.
- Factors supporting recovery include import tariffs on China steel imports which will solidify domestic steel manufacturing economics.
- Improved steel demand anticipated from onshoring and a recovery in end markets.
- Strong balance sheet to withstand cyclical weakness, reinforced by significant freehold land holdings.
- While Bluescope may not meet the traditional definition of Quality due to volatile earnings, its Australian business is unique.
- Features of uniqueness include ColourBond brand vertical integration that allows for superior profitability compared to traditional steel mills.
- The NorthStar Business is recognized as one of the lowest cost steel makers in the USA, supported by high utilisation and proximity to customers.
- Management has demonstrated a strong track record of value creation, notably through the growth of ColourBond and the NorthStar acquisition.
L1 Capital
31 Dec 2024
$18.69
- BlueScope Steel's shares have underperformed by 16% in the quarter due to weak global steel markets.
- Excess Chinese steel production has led to over 100Mtpa annual run-rate in exports, pressuring prices across Asia.
- U.S. steel markets have weakened amid uncertainty related to the upcoming government change and inflation/interest rate trajectories.
- BlueScope aims to deliver ~$200m in cost-out benefits across the organization, focusing on productivity enhancements.
- The company is expanding its U.S. business, particularly through the North Star steelmaking facility and evaluating further downstream investments.
- L1 Capital believes the market undervalues BlueScope’s strategic asset base and the resilience of the consolidated U.S. steel sector.
L1 Capital
31 May 2024
$21.14
- BlueScope Steel shares saw a -8% underperformance due to lower U.S. steel prices.
- Price declines are attributed to increased domestic capacity and heightened inbound import supply influenced by past orders.
- There is relatively weak demand impacting the pricing landscape.
- Despite the challenges, current U.S. steel spreads remain healthy, ensuring strong profitability from BlueScope's U.S. operations.
- BlueScope is committed to growing its U.S. business, including the expansion of the North Star steelmaking facility.
- The company is actively evaluating additional investments to enhance its product offerings further downstream.
- L1 Capital believes the market undervalues BlueScope’s strategic asset base and the resilience within the U.S. steel sector.
L1 Capital
31 Dec 2023
$23.54
- BlueScope Steel's strong performance attributed to a +61% increase in U.S. steel prices during the December quarter.
- Post-strike resolution of the United Auto Workers has positively impacted steel spreads.
- This environment is expected to provide a strong tailwind for BlueScope’s second half earnings.
- Recent M&A activity, particularly Nippon Steel’s acquisition of U.S. Steel, indicates potential future value for BlueScope’s U.S. operations.
- BlueScope is expanding its U.S. operations by increasing capacity at the North Star facility and acquiring Coil Coatings.
- The establishment of BlueScope Recycling follows its acquisition of the MetalX recycling business.
- L1 Capital believes the market significantly undervalues BlueScope’s strategic asset base amid sector consolidation.
L1 Capital
31 Dec 2023
$23.54
- BlueScope Steel has shown a strong performance with a +13% increase.
- The performance is driven by the strengthening of U.S. steel spreads.
- In December, U.S. steel prices rose by +9% and +61% during the December quarter.
- This price increase follows a resolution to the United Auto Workers strike.
- U.S. steel delivery lead times and prices are well above historic averages, indicating potential growth.
- Recent M&A activity in the U.S. is promising, especially Nippon Steel’s acquisition of U.S. Steel for ~US$14b.
- This acquisition bodes well for the future value of BlueScope’s U.S. operations.
- BlueScope is expanding its U.S. capacity by 850ktpa at the North Star facility in Ohio.
- They have also acquired Coil Coatings, the U.S.’s second largest metal coating/painting company.
- Establishing BlueScope Recycling follows the acquisition of MetalX recycling business.
- L1 Capital continues to believe that the market undervalues BlueScope’s unique and strategic asset base.
- There is recognition of the resilience of the largely consolidated U.S. steel sector.
L1 Capital
30 Nov 2023
$20.78
- BlueScope Steel shares increased by 11% over the month.
- The rise was driven by strengthening U.S. steel spreads following the resolution of the United Auto Workers strike.
- Company updated first half FY24 earnings guidance to the top-end of the previously provided range.
- Strengthening U.S. steel spreads expected to provide a strong tailwind for second half earnings.
- BlueScope focuses on expanding its U.S. operations, including:
- Increasing capacity at the North Star facility in Ohio by 850ktpa.
- Acquisition of the U.S.’s second largest metal coating/painting company, Coil Coatings.
- Establishing BlueScope Recycling following the acquisition of MetalX recycling business.
- L1 Capital believes the market is significantly undervaluing BlueScope’s strategic asset base and the resilience of the U.S. steel sector.
L1 Capital
30 June 2023
$20.55
- BlueScope (Long +11%) shares strengthened over the month.
- U.S. steel spreads continued to hold above long-run averages, aiding second half earnings expectations.
- BlueScope is committed to growing its U.S. operations through three key initiatives:
- 850ktpa capacity expansion and 500ktpa debottlenecking project at North Star facility in Ohio.
- Acquisition of the U.S.’s second largest metal coating/painting company, Coil Coatings.
- Establishment of BlueScope Recycling from the acquisition of MetalX recycling business.
- Despite recent share price strength, L1 Capital continues to believe the market significantly undervalues BlueScope’s unique and strategic asset base.
L1 Capital
31 Mar 2023
$20.15
- BlueScope (Long +20%) shares strengthened over the quarter as U.S. steel spreads recovered, enhancing second half earnings expectations.
- Focus on U.S. operations growth with an 850ktpa capacity expansion at the North Star facility in Ohio.
- Acquisition of Coil Coatings, the U.S.’s second largest metal coating/painting company.
- Establishment of BlueScope Recycling through the acquisition of the MetalX recycling business.
- Despite the share price rally, L1 Capital believes the market undervalues BlueScope’s unique and strategic asset base.
L1 Capital
30 Sept 2022
$15.19
- BlueScope Steel shares weakened over the month along with most offshore steel-making companies.
- U.S. and Asian steel spreads have declined, although they are starting to stabilise.
- U.S. steel spreads have fallen from record levels but remain healthy.
- BlueScope is focusing on expanding its U.S. operations, including a significant expansion at the North Star facility.
- The acquisition of Coil Coatings, the U.S.'s second largest metal coating/painting company, is part of their growth strategy.
- BlueScope is establishing BlueScope Recycling from its acquisition of the MetalX recycling business.
- With a strong net cash balance sheet, BlueScope is expected to continue its share buyback program.
- Current trading valuations are around ~4.0x consensus FY23 EV/EBIT and ~6.0x consensus FY23 PE.
- L1 Capital continues to believe the market undervalues BlueScope's unique and strategic asset base.
L1 Capital
30 June 2022
$15.90
- BlueScope Steel shares weakened over the quarter alongside most offshore steel-making companies.
- L1 Capital took the opportunity to top up their position in BlueScope.
- Despite rising bond yields impacting housing sentiment, steel demand in the U.S. and Australia remains robust.
- U.S. steel spreads, though from record levels, are expected to stay healthy near-term as import arbitrage has diminished.
- BlueScope recently acquired MetalX (scrap business) and Coil Coatings (second largest metal coating company in the U.S.).
- Expansion of the North Star plant in Ohio by 850kt expected to benefit earnings over the next 18 months.
- With a strong net cash balance sheet, BlueScope is expected to continue its $985m on-market share buyback program.
- The company plans a low-cost expansion of up to 1.4mt of steel at North Star in the coming years.
- BlueScope has committed to a $1b Port Kembla blast furnace reline and upgrade over the next four years, supporting its ESG and carbon abatement targets.
- Currently trading at ~4x FY23 EV/EBIT and 5.6x FY23 P/E, indicating significant undervaluation.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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