bluescope in focus as selling pressure eases

BlueScope in focus as selling pressure eases
Matthew Kidman April 12, 2012
(source: www.smh.com.au)


Cooked … BlueScope shares are near rock bottom.
(Photo: Bloomberg)

BlueScope Steel has one of the strangest-looking charts I can recall. After a sickening decline from more than $8 a share in early 2008 to 39.5¢ now, the stock has flatlined for the best part of five months. The chart looks as if it has formed a ledge - or a panhandle, as the Americans would call it.

In November, the company shocked the market by announcing a highly dilutive 4-for-5 rights issue at 40¢ a share, raising $600 million. At the time this was 34 per cent below the prevailing share price and 22.5 per cent below the theoretical ex-rights price.

Trading in the stock since late last year looks suspiciously as if the underwriters have been trying to offload the shares they were stuck with from the issue. It is difficult to work out when this selling will come to an end. Since the capital raising was announced, more than 3 billion shares have changed hands, which is close to 90 per cent of the total on issue and double the amount of new shares issued in the capital raising. In other words, the selling must be close to being complete.

Once this overhang is removed the share price should receive a boost. However, trading conditions are terrible for the steel company. The persistently high Australian dollar has hammered earnings. In addition, the record prices for steel inputs such as iron ore and coking coal has been a major problem. If these two factors change and the overhang of underwriters' stock is removed, then the stock could pop strongly. Recent cost cutting means that if the dollar falls to US90¢ the company will start to make a decent margin again.

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Question is when it will be boosted.


Regards,