BSL

Australian investors can gain exposure to the steel sector in a number of ways, but a more direct play would be to invest in stocks whose earnings are leveraged to the steel cycle. Australian sharemarket analyst, Macquarie Research Equities (MRE), have provided a steel sector update with the three stocks that stand out. The three outstanding steel sector stocks are OneSteel (OST), Bluescope Steel (BSL) and Sims Group (SGM). The analyst remains bullish on the outlook for the steel sector, and have "Outperform" recommendations on two of three aforementioned stocks.

Bluescope Steel has a maintained reduce 2 broker call and a $4.95 share price target from Australian markets analyst UBS. South East Asian site tour preview: BlueScope Steel hosting tour to Malaysian and Indonesian assets: BlueScope are hosting an analyst site visit to its assets in Indonesia and Malaysia. These operations make an interesting contrast, with the Malaysian business having been volatile and now coming through a restructuring, vs Indonesia which has been a solid steady performer. Will assess demand outlook, supply threats, and margin concerns: Over recent years Indonesian demand has been strong, while Malaysian has been weak, they will look to assess the outlook going forward. Other factors to consider include the impact of growing Chinese self sufficiency in downstream products, and narrowing steel price spreads in the Asian region. Steel prices globally are coming down, zinc prices are lifting, scrap prices are strong, the outlook for iron ore and coking coal is improving and the A$ is very strong. Under this environment we believe it will be a challenge for BlueScope Steel to outperform. Their valuation remains $9.10, our price target, set at a 15% premium to global peers on FY08 EV/EBITDA remains $9.45

There are three big steel companies listed on the Australian Stock Exchange: Bluescope Steel (BSL), Smorgon Steel (SSX) and OneSteel (OST). Recent global steel production data shows continued strength in the steel market place, with prices also remaining strong.

An update about Australian steel stocks by analyst Citigroup Investment Research (CIR): The analyst's medium-term steel view falters; in contrast to expectations based on their macro driven view of the steel industry, Asian steel prices are up 5%-30% since the start of 2007. The analyst now focuses on near-term indicators of steel prices and increase their earnings forecasts for the volatile steel stocks in their coverage universe by up to 27% and upgrade their recommendation on BlueScope (BSL) to Hold.

Blue Scope Steel (BSL) have an upgraded share trading recommendation of Outperform wth a 12-month share price target of $10.50 from analyst Macquarie Research Equities (MRE). The upgrade comes after MRE's bullish view on Hot Rolled Coil (HRC) prices. Shares in BlueScope Steel (BSL) have tracked lower to give back yesterday's gains after investors cheered the 1st half 2007 numbers. Management yesterday announced Net Profit After Tax (NPAT) of A$388m, up 24% on last year, and declared a higher-than-expected fully franked final dividend of 21 cents. MRE have observed that strong regional steel prices have helped to drive earnings and free cashflow. This is likely to continue into 2H07 despite the seasonally weak third quarter. Most of the BSL businesses helped to contribute to the improved profit result. However, the areas that improved the most compared to MRE's expectations were the Coated Products businesses in Australia and Asia. The fully franked dividend of 21 cents per share was also up on expectations, and given the strong free cashflow generation of the business MRE expect capital management to be a feature going forward. While the total business performed well, the real driver of future earnings remains the hot rolled coil (HRC) price. HRC prices drive earnings in the Hot Rolled Products Australia division and this drives nearly 70% of total BSL earnings. When HRC prices are high, earnings growth is positive and free cashflow generation is strong. To be bullish on BSL, you need to have a positive view on the Asian steel pricing environment. At this stage, MRE forecast that prices will remain at higher levels for longer with some upside risk in the medium term.

BlueScope Steel (BSL) have a downgraded share recommendation of Sell / High Risk and a raised share price target of $7.85 (from $7.60) from analyst Citigroup Investment Research (CIR). BlueScope delivered a strong result with NPAT of $388m, 9% ahead of expectations. Buoyant steel market conditions support the near-term outlook, but the analyst retains their outlook for weaker prices over the next 18 months. Strong performances out of Hot Rolled Products and Butler North America were the highlights. Higher-than-expected prices were realised for both domestic and exported upstream products. The Asian businesses contributed a combined EBIT of just $1m (excluding the $30m from Thailand). They expect significant writedowns in this division (perhaps when a new CEO is appointed), as they find it difficult to see how a 20% return can be earned on the >$1.2bn of investment. BlueScope indicated it remains open to supporting a restructured OneSteel / Smorgon Steel merger scheme, but didn’t offer any clarity on its “win-win-win” scenario. CIR have increased our earnings forecasts by 13% for F07, driven by a stronger-than-expected 1H result and a slight increase to our HRC price forecast. Our F08e and F09e earnings have increased by 5% and 7%, respectively.

BlueScope Steel (BSL) has a Reduce 2 stock recommendation and a share price target of $6.25 from stock analyst and investment banker UBS.

BlueScope Steel (BSL) has a maintained Reduce 2 stock recommendation with a $6.25 share price target from stock analyst UBS. UBS has downgraded their hard coking coal forecasts for the 2007 contract from US$115/t to US$95/t reflecting increasing pressure from steel mills as Western mills volumes weaken amid softening steel markets. Their valuation for BlueScope Steel is $7.80 from $7.66 and their share price target had an increase of 5 cents following a slight increase in earnings estimates.