Morgan Stanley thinks BlueScope Steel may upgrade its FY21 operating income guidance on the back of strengthening steel markets. The broker thinks this may lead to significant upgrades in FY22.

The broker expects strong earnings to flow through to cash flows and sees BlueScope Steel trading on a 20% free cash flow. As a result, Morgan Stanley believes capital management is highly likely and expects $500mpa buyback to be announced in August.

Equal-Weight rating with the target rising to $23.50 from $19.50. Industry view: In-line.

Sector: Materials.

Target price is $23.50.Current Price is $21.35. Difference: $2.15 - (brackets indicate current price is over target). If BSL meets the Morgan Stanley target it will return approximately 9% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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