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BlueScope Steel: 50% Upside In This Aussie Stock

Mar. 07, 2018 10:52 AM ETBlueScope Steel Limited (BLSFF)
Michael Turner profile picture
Michael Turner


  • BlueScope Steel has successfully diversified into a value-added business, with several unique segments contributing to revenue.
  • Today the company has a much lower dependency on export driven commodity sales.
  • Despite a large run-up in the stock price since August 2017, it remains conservatively valued with large upside remaining.

The Stock

BlueScope Steel Ltd (OTCPK:BLSFF) is the third largest manufacturer of painted and coated steel products globally. The independent Jacobson survey listed BlueScope's North Star operations as the leading mini-mill in the US based on quality. With its current valuation of a PE ratio of 13, I believe the market is significantly underestimating the effect that several macroeconomic tailwinds will have on growth within the company. The global uplift in growth over the last several years has greatly benefited BlueScope as demand for its value-added steel products increased, and will continue to do so. Recent changes in Chinese steel production/distribution (which resulted in less low quality Chinese steel flooding the international market) have increased prices for high quality Western steel and value added steel products.

(Source: Google Finance)

Steel Price Increases

The decline in Chinese exports is benefiting international producers; ArcelorMittal, the biggest steel maker, reported its best six months' profit in half a decade last month. At the same time, Chinese producers are gaining from surging margins between steel prices and costs such as iron ore and coking coal. The shift, along with plans by China to shutter excess capacity, has blunted accusations by US politicians including President Donald Trump that a flood of cheap Chinese steel is destroying jobs for steelworkers abroad. China plans to close 50 million metric tons of steel capacity this year and as much as 150 million tons in the five years ending 2020 as it seeks to make the industry less dependent on the state.
(Source: AFR - Chinese steel prices forecast to hold steady through September)

Trump's Steel Tariffs

While unveiling BlueScope's half-year results (including a 23 per cent jump in net profit) BlueScope's CEO said the Trump Administration's proposed steel import crackdown would affect its Australian steel exports and US west-coast

This article was written by

Michael Turner profile picture
I am based in governance roles in Sydney, Australia - as such, a large portion of my research is focused on the quality of governance in mid-cap ASX listed corporations.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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