Are skittish investors overlooking BlueScope's long-term growth story?

BlueScope (ASX: BSL) shares have struggled for upside as the Russia-Ukraine war drives input costs higher and sparks concerns about weaker global economic growth. 

Despite BlueScope reporting a record first-half result, the company shares are down -11.5% year-to-date and flat in the past 12-months.

Let's take a look at BlueScope's recent financial performance and the outlook for global steel markets.

First-half results recap 

• Net profit of $1.64bn, up 396%

• Free cash flow of $688m, up 158%

• Net cash of $696m, down -12.8%

• Interim dividend of 25 cents compared to 6 cents a year ago

The record half-year results was driven by strong demand across building and construction sectors, coupled with robust margins driven by higher steel prices in Asia and the US. 

The result was well accepted by brokers, with the following updates the day after the results announcement:

• Morgan Stanley upgrades to Overweight from Equal-weight with a $25.00 price target

• Ord Minnett retained a Buy rating with $25.00 price target 

• Credit Suisse retained an Outperform rating with a $28.70 price target

• Macquarie retained a Neutral rating with a $20.90 price target

• Citi retained a Buy rating with a $25.00 price target

The main criticism from brokers was weaker-than-expected cashflows due to a 260% jump in working capital to $1.1bn. 

The spike in working capital reflects significantly higher steel prices and supply chain disruptions across the business. 

Strategic steel 

Commodity security is becoming an increasingly important topic as the Russia-Ukraine war squeezes prices and supply. 

BlueScope recently received $50m from the Australian federal government to part-fund the company’s redevelopment project to safeguard domestic steel supplies, the Australian Financial Review reported. 

The funding initiative is aimed at securing "our sovereign capability in steel fabrication".

Supportive policies 

There's no shortage of accommodative fiscal stimulus from major economies, aimed at bolstering economic growth and funding the transition towards green technologies. Notable announcements include:

• US President Joe Biden’s US$1.2tn Bipartisan Infrastructure Framework

• EU’s Next Generation 750bn euros economic recovery package

• India’s US$1.3tn infrastructure plan 

BHP’s (ASX: BHP) half-year result also pointed out:

“End-use demand in China is expected to firm over the course of the 2022 calendar year, as easier policy gradually takes hold. As is common at the start of a new five-year plan, infrastructure is expected to be supportive of steel demand.”

GDP growth at risk

Unfortunately, these big headline policy initiatives may be spread over many years and fail to trickle down to the GDP level.

Analysts at Goldman Sachs have downgraded their forecasts for US GDP growth as a result of surging oil prices.

The investment bank cut annualised GDP growth from 3.1% to 2.9%, warning that both elevated prices and material shortages could constrain US production.

The US is home to BlueScope's North Star steel mill and a major building products market.