Severfield Share Discussion Threads

[waldron] 14/7/2015 09:34

The Swiss National Bank is faced with an overheating currency and slumping economy following the decision to abandon the currency exchange rate cap on the Euro. Uncertainty in the EU is leading to a rush on the franc and severely hampering the export and tourism-dependent Swiss economy.

From high unemployment in southern Europe to sluggish economic growth and Grexit fears, the EU and the euro have recently taken a beating. All this uncertainty is leading some investors to seek safe havens, such as Switzerland.

Swiss stability is envied by many in the EU, with citizens in Sardinia even setting up a campaign to secede to Switzerland. Even the gallows humour permeating Greece has taken note: caught between having to choose between the Euro or drachma, some Greeks have half-jokingly opted for the franc.

Abandonment of exchange rate cap

Switzerland has long been accustomed to such trends, but the duration and proximity of the euro crisis has led to a massive overvaluation of the franc (CHF). Ever since the global financial and euro crises, the franc has steadily appreciated, leading the Swiss National Bank (SNB) to implement an exchange rate cap of 1.20CHF to the euro in September 2011. This cap had long been a core element of SNB fiscal policy, so it came as a shock when it was unceremoniously dumped in January 2015.

This was especially shocking as only days earlier the SNB assured that it would maintain the cap with unlimited forex purchases to boost competing exchange rates. SNB head Thomas Jordan even managed to catch the IMF off-guard, with Christine Lagarde stating that “Jordan did not contact me beforehand. I find this somewhat ponderous.”

Within minutes of the cap’s removal, the franc appreciated an unprecedented 30% against G10 currencies, at one point breaking parity with the euro, before stabilizing at a new norm of around 1.05CHF. This jump has led the franc to become, by far, the world’s best performing currency against the dollar for 2015.
franc vs. euro

credit: Bloomberg

Limited room to maneuver for SNB

The extent of the franc’s appreciation has surprised even the SNB, which had assumed that the exchange rate would stabilize around the 1.10–1.15CHF mark. This has not occurred, and the SNB is forced to hope for a strengthening dollar or turnaround in the Eurozone to cool demand.

The problem for the SNB is that is has limited options to curtail demand for the franc, given that much of the pressure is coming from overseas. Uncertainty, however, has also impacted Swiss investors, with many wary of investing in the EU. To counteract this trend, the SNB has already instituted negative interest rates, raising them several times to the current -0.75%.

One option touted by Daniel Kalt, chief economist at UBS, is the imposition of capital controls such as withdrawal limits like those seen in Greece. Such measures could see individuals restricted to 100 or 500 CHF per day. Kalt states he can only envision this option being implemented if the euro reaches 0.90-0.95CHF; but given the upcoming Greek referendum, such a scenario is not out of the question.

Such a measure is a last ditch resort, as withdrawal limits would damage the reputation of Switzerland as a safe financial haven: foreign investors need to remain assured that they can access their money at any time. Another option which Kalt prefers to negative interest rates is the imposition of a potential fee – say 2% – on each cash withdrawal. This idea is not new, as in the 1970s, non-residents had to pay a fee of up to 10% per half year on withdrawals.

Swiss economy faces recession

The impact of the cap removal has had significant repercussions for the Swiss economy. For a country dependent on exports and tourism, a strong franc is deadly. Swiss GDP already shrunk 0.2% in Q12015 – the worst performance in six years – with Q2 likely to see the country slide into recession due to a further 0.2% decline. Exports in Q1 were also down 2.3%, another six year low.

Further complicating matters for the Swiss is the progress of the Trans-Atlantic Trade & Investment Partnership (TTIP) between the US and the EU. According to the World Trade Institute, a US-EU free trade agreement that focuses on reducing tariffs without an accompanying European Free Trade Area (EFTA) FTA deal could shave 0.5% from Swiss GDP.

The luxury watch industry, the poster boy of the Swiss economy which comprises over 10% of exports, reported an 8.9% decrease, according to the Federation of the Swiss Watch Industry — the worst performance since the height of the global financial crisis in November, 2009.

Manufacturing and tourism hit hard

Other important sectors of the Swiss economy, such as the machine-tool industry, are also suffering. Rolf Muster, CEO of Schaublin Machines SA, has seen a 60% drop in orders since the cap removal. Muster embodies the widespread industry anger with the SNB’s decision to remove the franc cap:

The machine-tool industry is used to weathering cyclical crises, but today the situation is really serious…the Germans, our main competitors from one day to the next became 15% cheaper without so much as having to replace a single bolt.

Cheaper EU competitors pose a serious threat to the Swiss machine-electro-metal industry, which exports 80% of national production (60% to the EU). Swissmem, the umbrella organization representing 330,000 machine, electrical, metal industry workers, notes that “a majority of companies in the industry are strongly affected by the SNB decision.” The only upside is that raw materials imports — a major expenditure given Switzerland’s lack of natural resources — are now cheaper, thus potentially bolstering Swiss manufacturers.

The Swiss tourism industry is also suffering from the strong franc, as bookings from EU guests (the largest tourist demographic) have declined by 25% since the euro exchange rate has risen to 1.05CHF. Ernst Wyrsch, president of the Grisons Hotel Association, forecasts that the industry will in the next three to four years experience a “rough and tumble phase the likes of which we haven’t seen in 30 years.”

Taking note of the silver lining of cheap imports, the Swiss hotelier industry has floated the idea of importing food for foreign guests duty-free from the EU in order to offset costs. This pragmatic proposal has been vehemently opposed by farmers, who are benefiting from high food prices. Consequently, this issue has become politically toxic as farmers can rely on full support from the Swiss People’s Party (SVP), the largest party in parliament.

Switzerland’s rock-like stability has proven too much of a good thing, with the Swiss economy and SNB now stuck between a rock and a hard place.

[jadeticl3] 06/7/2015 18:34

thorne1, not sure that I agree with your conclusion. You are right for any who bought new at your lowest price, but I am a long term holder so taking my total financial commitment for the period of 6 months before the Rights Issue until now, I am nothing like a treble gainer. However, I have recovered my losses.

[thorne1] 06/7/2015 13:49

In March 2013 there was a 7:3 rescue rights issue at 23p; this means that circa 70% of the total shareholding is represented by parties who are presently trebling their money.It is difficult therefore to see how the share price is going to move significantly in the short to medium term.

[cc2014] 06/7/2015 13:22

Someone has been selling in large quantities just below 70p for a couple of weeks now. Until they've finished it's going nowhere.

However, given the amount they have already shifted it can't be long before they run out.

[sspurt] 06/7/2015 11:54

not so sure...this is primarily a margin play and as has happened so often in the past, and demo'd again today with BILN, analysts always underestimate strength and pace of margin recovery

[thorne1] 06/7/2015 11:25

Because this year's profits and next year's are already in the share price.

[sspurt] 06/7/2015 09:40

Great statement from Billington today. Just surprised SFR market so slow to react

[cojones] 03/7/2015 20:59

forget about what these prophets come out with please folk... they are a dying breed as ethos changes and we all see between the lines.
I have been at this game a few years now and i can say that i'll eat my hat this coming week if we do not surpass 75p. aimhodyor etc
;)

[bluesbeater] 03/7/2015 16:20

obviously an error
17-Jun-15 Canaccord Genuity Buy - 80.00 Reiteration
08-Apr-15 Jefferies Buy 320.00 370.00 Reiteration
11-Dec-14 Jefferies Buy 66.00 71.00 Reiteration

[jadeticl3] 03/7/2015 00:03

Which year?

[johnv] 02/7/2015 10:06

Did anybody notice Jefferies new price target on 8th Apr of 370p? Is this correct?

[damanko] 29/6/2015 15:25

Quite so.

What does bear thinking about is my 'buying' price of seven shillings and tenpence - 39p in this new stuff (thanks to subscribing to the rights issue...).

I have no intention of selling for some years - I'm a little strange like that. Though with the market cap now only a little north of 200 million pounds, I'm a tad surprised that nobody has nipped in with a speculative bid. This (now) is the type of company the Hansons of bygone years would have snapped up.

[meijiman] 29/6/2015 08:58

Thanks. Suspect there will not be any similar buildings with Cheesegrater type bolts built unless this issue gets fully nailed down.If one of those had landed on someone's head then the consequences don't bear thinking about..........

[damanko] 28/6/2015 21:57

Quite right meijiman. Also, on a contract of this sort, Arup would have the final say on whether the original bolts (as specified to be supplied by Severs ....) passed muster in terms of quality. Somebody responsible in Arup will have signed this stuff as approved.

This is normal in any modern civil engineering project, so reading between the lines I'd hazard a guess that in time to come liability may well be 'split' between several interested parties. And that 'time to come' may be many months, or even years away. By which time Severs may well be a very different company, with a very different share price, and few will be concerned.

We'll see. Seems to me that for the time being, and until liability is finally agreed, all concerned have decided that Joe Public strolling around eating a prawn & rocket baguette doesn't really deserve to have his head knocked off.

No win no fee tossahs then really would have a field day.

[meijiman] 28/6/2015 12:40

Sounds to be more a problem for the steel supplier ie the actual maker of the metal. Guess their defence would be that this grade of steel should not have been specified for that particular job. Equally the steel may have been faulty, This could rumble on for some time.

[damanko] 28/6/2015 11:29

Regarding the six million pounds re the Cheesegrater: This is a provision, not an actual cost. In fact liability has not yet been agreed on a formal basis.

The companies involved have agreed to just fix the problem first (i.e. replace all existing bolts deemed to be susceptible to hydrogen embrittlement).

Ian Lawson is quoted as follows: "No-one has agreed liability but we are getting on and sorting (the problem with the bolts) out."

Others involved in this 'problem': British Land. Laing O'Rourke and Arup.

[cojones] 26/6/2015 16:12

knock knock knocking on 80p's door!!

[cojones] 26/6/2015 16:12

nice to see more high volumes coming through. Not long before we see 80p here for sure now ;)
gluck all

[4spiel] 25/6/2015 19:53

What stands out about this company is that its a fighter. Also it does not forget the shareholders - it's been a good dividend payer. with raw materials cheaper this must be helping too.

[rafieh] 25/6/2015 19:08

Nice volume today. Getting ready to roar up?

[cc2014] 22/6/2015 13:34

LGEN adding. Would be nice to know who is selling as they are making me frustrated

[jadeticl3] 20/6/2015 21:42

Re bolts on Cheesegrater. I thought SFR were to be involved in discussions which would allocate responsibility for the problem between several companies implicated. Then costs would also be allocated across these companies. At the £6M quoted it looks as though SFR have footed the whole bill?

[cojones] 19/6/2015 23:47

itchy, i believe your on the right track ;) This has the recovery play theorum written all over it. If you want to make some serious money stick your money here and wait.
I would never promote people to put their money down on a market with such a bull(excuse the pun) system these days. Its now an UNtransparent, manipulated market with a range of manipulative trading systems that are set with ingenious algorythms which will take your hard earned money... in general one should stay clear!
Quality stocks such as SFR are an exception and you only have to look at their contract wins to see they are elite in their field.

Results show the recovery is now in motion ....(although the 6 million to amend the bolts on the cheesegrater was a hefty surprise to me! A staggering change from the cost of 1 million management had initally stated.
Hopefully the management wont make a mistake like this again!
good luck all holders here

coj ;)

[itchycrack] 19/6/2015 11:09

This company is now leaner and meaner than it was before. IMHO its a fantastic recovery play. I upped my holding so I'm not diluted at all on my original holding, and can easy see this reaching new highs given a medium term time frame.

[thorne1] 19/6/2015 11:04

r2-Point taken, however do you agree with me?