BlueScope will be 'turning the corner' for a long time Bluescope Steel works in Hastings. Picture: Bruce Magilton Source: HeraldSun FOR far too many years the Australian steel industry has provided a handy blast furnace into which shareholder funds have been shovelled, never to be seen again. That trend continued today with the announcement BlueScope Steel was buying Hills Holding's Orccon and Fielders steel businesses. It didn't matter that BlueScope got a bargain for just $87.5 million and that the businesses should add to its earnings per share almost immediately. BlueScope shares got smashed to the tune of 14 per cent while Hills stock soared 11 per cent. Those Hills shareholders will be hoping the ACCC lets this deal go through to the keeper because they never want to see those steel pipes, tubes and rolled steel products again. Sticky stamps, no returns and hope to die on that sale. To be fair, investors were also very disappointed with BlueScope Steel chief Paul O'Malley's fairly muted, "we are not out of the woods yet" profit outlook even after he had pulled off a fairly dramatic $960 million annual profit turnaround for the business thanks to savage cost cuts. What they were looking for after funding some fairly heroic balance sheet restoration work through repeated capital raisings was a bit of hope, a statement that 2013/14 might go better and earn profit of $100 million or two. Instead, O'Malley said the next six months are actually looking worse than the same time last year and you now need a set of binoculars or even a telescope to see when the next dividend payment might arrive. And even if the Australian construction industry turns the corner and needs more steel, softness in the mining and engineering sectors will probably account for the difference. Not to mention the lower Australian dollar is yet to slow supplies of imported steel, thanks to world overproduction. In those circumstances, using some precious shareholder funds to double down on some more steel was never going to win any popularity contests, even if there is a certain industrial logic in taking out a domestic competitor and customer - ACCC willing. The problem for BlueScope is that the hope of a brighter profit outlook was already baked into the share price, making it even more susceptible to a caning once the outlook was hosed down to more hard graft ahead. BlueScope remains an avoid on the basis this stock will be "turning the corner" for a long time to come. Hills Holdings, on the other hand, is a more interesting proposition as it transforms out of its industrial past and moves towards a high-tech future. The company has made some good strides in beginning the transformation under former Telstra executive Ted "dot com" Pretty, with the sale of the steel businesses the most important so far. Hills is a smaller, more nimble company than BlueScope but after yesterday's share price hike, it moves to a hold until some more concrete evidence the new strategy is working comes through. Amcor has the opposite problem to BlueScope. The packaging giant is performing so well overseas, it is effectively shedding its Australian packaging and cardboard box arm because it is no longer part of the main game and is holding it back. And that main game is the developing world, which is still providing plenty of growth to Amcor's flexible packaging and tobacco packaging business and improving markets in North America, which are driving growth in the rigid plastics business as bottled water and soft drinks are consumed. The soon to be spun out Australasia and Packaging Distribution is in a very different space, relying on cost cuts and improvements in the domestic consumption of consumer staples to improve its bottom line. The international Amcor remains an attractive growth company with defensive earnings while the Aussie/NZ arm will be something of an unwanted orphan child for international investors. Given the strong share performance of Amcor recently, it moves to a hold with the two companies for the price of one deal on offer not compelling. The Herald Sun accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser.