BlueScope returns well below profit potential, suitor SGH chair Ryan Stokes says
Australia’s biggest steelworks is generating about half the profits it could be from assets like Port Kembla, according to businessman Ryan Stokes, who is leading a takeover bid for the company.
The company that pioneered Australian steel making, BlueScope, is generating about half the profits it could be from assets such as the NSW Port Kembla steelworks, according to businessman Ryan Stokes, who is leading a hostile takeover bid for the company.
Mr Stokes, the chief executive of conglomerate SGH, estimated the return from BlueScope’s investments in its Australian operations are about 5 per cent, a figure not much higher than the 4.35 per cent “risk free” rate set by the Reserve Bank of Australia.
Mr Stokes suggested SGH could run BlueScope more efficiently than chairman Jane McAloon and chief executive Tania Archibald based on the performance of SGH companies Coates and Boral, which have helped turn SGH into one of the Australia’s largest industrial companies.
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By continuing you agree to our Terms and Privacy Policy.Mr Stokes said BlueScope’s 98-year-old Port Kembla steelworks, the largest in Australia, should deliver a return near 10 per cent based on a measure known as the return on invested capital.
BlueScope’s Australian returns are “not a sustained position,” Mr Stokes told Macquarie Group’s investment conference in Sydney.
“So long term there’s the opportunity to drive some of the disciplines that we have provided across Coates and Boral to unlock some of that investment opportunity,” he said.
BlueScope did not immediately respond to the comment.
SGH, which was created by Mr Stokes’ billionaire father, Kerry Stokes, has offered $34 a share for BlueScope, or about $15 billion, in conjunction with an American company, Steel Dynamics. The Melbourne-based BlueScope said in February it is open to a deal but the offer was too low, leaving the companies in a stalemate SGH hopes will be broken by BlueScope’s shareholders.
BlueScope’s shares have risen 9 per cent over the past month to $29.42, a price that suggests the odds of a sale are increasing.
Mr Stokes said SGH expects to increase earnings before interest and taxes this financial year by the “low to mid-single” digits. The main threat from the war in the Middle East is to the supply of fuel, especially diesel, he said, although the company has adequate shipments locked in for the next two-to-three months.
SGH shares rose 1.2 per cent to $40.22. SGH owns 20 per cent of Southern Cross Austereo, which owns The Nightly and The West Australian.
