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SGM

Sim Metal Management Ltd – Significant Fall in Ferrous Pricing

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Sims Metal Management (ASX: SGM) is a metal recycler, with operations encompassing the buying, processing and selling of ferrous and non-ferrous recycled metals. SGM has operations in Australasia, United States and United Kingdom. SGM has a market capitalisation of A$2.5 billion.

Sim Metal Management

What is the 1H FY20 trading update?

SGM announced today (16 September 2019) that the significant fall in ferrous and non-ferrous prices will negatively impact 1H FY20 results. The TSI Turkey scrap price (including freight) dropped to around US$240/tonne on 12 September 2019. This is a significant price drop compared to the price of US$295/tonne around July.

SGM management notes,

The escalating trade wars, that were discussed at their year-end results, continue to reduce the demand for steel and aluminium.  At that time, Steel Mills appeared to be managing the lower demand, but in early September, they materially reduced their scrap purchases, and also their outlook for scrap purchases.  This reduction in demand for scrap has driven a steep fall in prices.

What is the market reaction?

The initial market reaction to the SGM announcement is negative. SGM share price is down around 12 per cent and is currently trading at around A$11 (10.50am, 16 September). SGM has a P/E ratio in the mid-teens and an annual dividend yield of around 3 per cent (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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