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.
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).
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