BlueScope's year could have been much worse

The retail shareholder response to steel producer BlueScope Steel's $600 million capital raising was predictably underwhelming, with less than half 310 million out of 649 million of the shares on offer taken up at the 40? offer price. Understandable when you look at the year BlueScope and the Australian steel industry have endured. And yet, it could have been much worse.

Underwriter Credit Suisse was no doubt getting twitchy when the share price was hovering at 38? for much of the offer period.

But Insider also believes that some of the smart money, including hedge funds that have shorted the stock for most of its journey down, may be thinking the company's share price has finally hit the bottom after about an 80 per cent fall from the start of the year. The argument stems from supply constraints overseas, which have left analysts much more confident about steel prices in the medium term.

But even with a fixed balance sheet, is BlueScope a value story? Put simply, hitting the bottom is not necessarily the same as saying a company is on its way back up.

The uncertainty of the structural overhaul being experienced by the company would suggest better value could be had elsewhere.

Nonetheless, the company late yesterday was spreading the word around the market that the book-build, for the shares not taken up under the retail component of the entitlement offer, was "well covered" at 40?, even before going to offshore institutional buyers overnight.

Last Friday, it also welcomed $100 million in government assistance payments as an important step in paying down debt also the main motivation for the equity raising. But the receipt of government handouts serves to underscore the grim reality the company is trading in.

As chief executive Paul O'Malley (left) pointed out when announcing the $600 million raising last month: "Earnings continue to be impacted by the ongoing environment of a high Australian dollar, low steel prices, high raw material costs and softer demand conditions in Australia."

Shares in BlueScope will remain in a trading halt until Monday unless the outcome of the book-build is known earlier.

Leighton looking up

ANOTHER large company that has endured a horror year is Leighton Holdings, with the contractor struggling to regain its credibility after a range of profit downgrades on key problem contracts, and David Stewart dumped as chief executive just eight months after taking over from the long-serving Wal King.

It is early days yet, but Stewart's replacement, Hamish Tyrwhitt, appears to be winning over some sceptics.

Nomura analyst Simon Thackray was one of the first to put a "sell" on Leighton late last year when it was trading at $33.

Now with the stock struggling to break $20, the Nomura analyst has put a "buy" call on the stock.

"We see 2011 as the turning point for the group risks are abating, quality is rising and margins can improve consistently as profitless work rolls away," he said in a recent note.

The company's pitch remains that it is exposed to all the right geographic areas and in the right sectors.

It reported $6.4 billion in revenue for the September quarter, making its full-year target of $20 billion look conservative, particularly on the back of strong contract wins in recent weeks.

The key thing will be whether it has learnt from its mistakes. The group's push into India could prove lucrative, provided it doesn't turn into a repeat of its Middle Eastern woes.

Group revenue is likely to hit fresh record highs, but as Tyrwhitt himself has lamented before, 400-plus profitable contracts count for little if just two or three big ones go spectacularly astray.

Setback for Brierley

THE fund backed by Ron Brierley, India Equities, has had its tilt for the Asset Backed Yield Trust of Adelaide Managed Funds scuppered after the stock exchange knocked back its request to postpone the delisting of AYT yesterday.

Gabriel Radzyminski of India Equities told Insider the fund had managed to acquire only a "negligible" amount of AYT units through its short-lived on-market bid, and expressed disappointment that unit holders were not given ample opportunity to consider their offer.

pwen@fairfaxmedia.com.au

The uncertainty of the structural overhaul being experienced by the company would suggest better value could be had elsewhere.