The BlueScope Steel Limited (ASX: BSL) share price could rocket higher today and see momentum build in 2017, following the release of the company's half-year report.
In a statement to the ASX this morning, the steel manufacturer reported a 79% jump in half year profit, to $359 million, for the period ended 31 December 2016. Sales revenue jumped an impressive 17% to $5.18 billion.
Managing Director and CEO, Paul O'Malley, said, "The strong growth was generated through delivery of productivity and cost improvements, sales growth, improved steel spreads and the benefit of the North Star acquisition."
Pleasingly, the company upped its half year dividend to four cents per share fully franked, from three cents in the same period last year. The BlueScope board also approved a share buyback of $150 million, aimed at improving the company's balance sheet.
"We are now seeing the benefits of our strategic initiatives flowing through to the bottom line," Mr O'Malley added. "There are positive trading conditions across most of our businesses and BlueScope has been generating strong cash flow."
Looking ahead into the second half of its financial year, the company expects an operating profit of around $510 million. However, the forecasts are subject to market conditions, among other things.
Should you buy BlueScope Steel shares in 2017?
The BlueScope Steel share price has rallied 122% in 12 months. Today's result may appear to justify the share price rally. However, does it really justify another increase beyond today's share price?
Free cash flow is the best measure to assess a company's profitability, and BlueScope made around $300 million of it during the half, according to my calculations. Over the full year that may place it on a price-to-free cash flow multiple of around 11 times (being conservative).
In my opinion that is too expensive for the risks involved.
