Steel & Tube Holdings is unlikely to pay a final dividend this financial year and may have to raise equity as its earnings and debt come under pressure, according to research house Craigs Investment Partners.
The Lower Hutt-based manufacturer and distributor of steel building supplies warned last week that it expects to post a 2018 loss before interest and tax of about $38 million and breach its banking covenants after a restructuring that will see it write down the value of its assets by $54m.
It said it was seeking a waiver from its banking partners for the breach and expects to make a decision on the payment of a final dividend for the 2018 financial year, in line with its policy, when the financial result is finalised.
"While Steel & Tube expects to see earnings improve due to its change programme and is divesting assets, this is a difficult position for a low-margin cyclical business and places pressure on the dividend and opens the possibility of an equity raising," Craigs research analyst Chris Byrne said in his report titled 'Bent out of shape'.
Given the company's uncertain operating environment, high gearing and decline in underlying earnings, Byrne expects Steel & Tube to cut its dividend for the 2018 financial year to 7 cents per share from 16 cents in 2017, in line with its policy of paying out 60-to-80 per cent of normalised net earnings.
