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Steel & Tube shares hit 9-month high

NZ Newswire logoNZ Newswire 15/08/2016 Paul McBeth

Steel & Tube Holdings shares reached a nine-month high after First NZ Capital analysts raised their rating on the stock following the steel products maker posting better-than-expected annual earnings and lifting its dividend payment.

The shares jumped 13 per cent to $2.47, the highest level since Nov. 11, after First NZ upgraded its rating on Steel & Tube to 'outperform' from 'neutral' and lifted its target price 10 cents to $2.70.

The Lower Hutt-based company last week reported an underlying profit of $19.4 million in the year ended June 30 on record sales of $516 million as the contribution from new acquisitions and cost savings helped offset weaker prices and margins and costs related to "quality issues".

First NZ analyst Kar Yue Yeo raised its forecasts for Steel & Tube's earnings by between 5 per cent and 8 per cent over the next three years reflecting better gross margins and the removal of product issue costs incurred in 2016.

"Further improvement in NZ steel demand is anticipated to lift sales in FY17F," Yeo said in a note to clients.

"Additionally, steel product providing and distribution margin appears to be recovering following a recent round of price increases."

Steel & Tube has been recovering from a tough year which saw its shares sink as low as $1.79 in June, the lowest since 2001.

In March, the Commerce Commission began an investigation into earthquake reinforcing mesh products that weren't certified as claimed, and the company was forced to cut guidance in May as intense competition in the domestic steel market squeezed margins and its Chinese-sourced road reinforcing for the Huntly bypass was found to be weaker than specified.

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