BlueScope Steel (BSL) - Geographic spread split

BlueScope Steel produces and markets in hot rolled coil, coated and painted steel building products in Australia, New Zealand, Asia, North America and elsewhere. Its best-known brands include COLORBOND, COLORSTEEL, ZINCALUME and LYSAGHT. The company was spun out of the then BHP-Billiton Group in 2002, and is headquartered in Melbourne.

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Ord Minnett has reviewed its model for BlueScope Steel to incorporate wider US steel spreads and lower spreads in its Australian steel operations. Spreads in the US, where BlueScope’s North Star business is based, have persisted around the US$500 a tonne level since February, while spreads in the Australian Steel Products division have narrowed over the same period.

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Post the review, we have raised our FY25 and FY26 EPS estimates by 7.6% and 11.3%,respectively, while our FY27 forecast is essentially unchanged. These upgrades lead us to raise our target price on BlueScope to $29.00 from $27.50. The company has major maintenance and expansion projects in train, which are keeping capital expenditure elevated, but we expect a cash outflow position in FY25 to revert to an inflow position in FY27 and FY28 as the spending on those projects starts to pay off.

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This positive operational and free cash flow outlook, along with an appealing valuation multiple, leads Ord Minnett to raise its recommendation on BlueScope to Buy from Accumulate.

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