The Distillery: Bluescope blues

Jotters say things look pretty good at Bluescope despite the share price hit, while others suggest Challenger has been up to some pretty nifty dividend footwork.

BlueScope Steel’s shares were smashed yesterday to the tune of 16 per cent despite an enormous rebound in the company's fortunes. Australia’s business commentators are at pains to point out that BlueScope’s Paul O’Malley has done a terrific job turning the company around, but the market was expecting the turnaround to be sharp and almost unrelenting.

The Australian Financial Review’s Matthew Stevens writes that the decision to shut down Port Kembla to some extent hid the broader shift towards recovery at BlueScope.

“O’Malley set about repairing a critically stressed balance sheet by pressing shareholders for $576 million of new equity and raising nearly as much from Nippon Steel in manufacturing a pan-Asian joint venture in the coated-steel business. At the same time he moved to better align his steel capacity with the demands of an Australian market being invaded by imported product, and set about pruning his cost base as a means of dealing with the impact of lower US dollar steel prices, higher US-dollar-price raw materials and a strong Australian dollar. On pretty much every level, O’Malley has achieved what he set out to do. In Australia, across Asia and in the US, O’Malley is comfortable that he is in control of what he can control.”

Fairfax’s Elizabeth Knight observes, as many do this morning, that BlueScope’s epic share price fall came despite a massive turnaround in its numbers over the last two years.

“The market was expecting the combination of a weaker Australian dollar, some traction of anti-dumping regulations and cost cutting to start to kick in during the first half of financial year 2014. But O’Malley chose to err on the side of safety. In doing so he left shareholders with an unpleasant taste…The trouble is investors wanted earnings momentum to continue in 2014, rather than take a six-month growth pause.”

Business Spectator’s Stephen Bartholomeusz says BlueScope’s decision to purchase two businesses from Hills Industries is illustrative of a shift in mindset at the once seriously troubled company.

“Assuming the deals get past the Australian Competition and Consumer Commission, they are a signal that BlueScope’s board and management are now looking for ways to begin growing the group again now that the joint venture with Nippon Steel has been bedded down, BlueScope’s debt is under control and the core continuing divisions within the group are operating in positive territory. The cautious outlook statement, however, reflects the continuing reality that the fortunes of the group are still heavily reliant on levels of activity within Australia, on the value of the Australian dollar, on raw material costs and, given that it still has significant operations in Asia and North American, conditions in those markets. The combination of the board’s wariness about the outlook and preparedness to spend to acquire new businesses while the group is still only barely profitable and not paying dividends probably explains the severity of the sharemarket’s response to the result.”

The Australian’s John Durie makes the point that manufacturing isn't just doing it tough because they've got expenses to slice from operations and a still inflated currency to deal with, but because demand for their product is almost flat.

“The Orrcon and Fielders assets O’Malley is buying from Pretty are customers and competitors to BlueScope, and the pitch will be that import competition will keep them honest. That works to a degree, but the ACCC will be a little wary of O’Malley, given yesterday’s profit presentation devoted some space to trumpeting government changes to make it easier to win anti-dumping cases, which effectively block imports and hence reduces competition.”

The Australian Financial Review’s Chanticleer columnist Tony Boyd says promises of dividends and more share buybacks have helped financial services company Challenger shake off the scepticism that so dogged the stock.

And finally, Fairfax’s Adele Ferguson looks at the first batch of figures from the Australian Bureau of Statistics on online retail figures in the context of the missed tax revenue from overseas purchases and the budget deficit.

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