SGM 0.21% $14.39 sims limited

ferrets stock to watch: sims group limited

  1. 4,756 Posts.
    Ferret's Stock to Watch: SIMS GROUP LIMITED
    09:32, Tuesday, 31 October 2006

    CEO WARNS SHAREHOLDERS OF CONTRACTION IN FERROUS MARGIN

    Sydney - Tuesday - October 31: (RWE Aust Business News)
    *******************************************************

    OVERVIEW
    ********

    Profit-taking in a quality stock provides an opportunity for the
    serious investor.

    This has been the fate of Sims Group Ltd (ASX:SGM) after some
    traders decided to get out on a high note in the wake of a 128 per cent
    lift in earnings to $68.1 million for the first quarter, which lined up
    with guidance.

    But the sobering aspect was that chief executive Jeremy
    Sutcliffe, who has held the reins since restructuring, has warned
    shareholders there is likely to be a contraction in ferrous margins
    during the second quarter.

    The shares yesterday plumbed $21.81 - down 55c from Friday's
    close - before recovering.

    Mr Sutcliffe commented it was a very strong quarter with the
    significant non-ferrous contribution maintained.

    The latest result was achieved on sales which soared 116 per cent
    to $1.2 billion in the first quarter of fiscal 2007.

    It reflected, in part, the contribution from the former Hugo Neu
    operations.

    Earnings per share also increased, by 68 per cent.

    "The company has delivered a result consistent with our guidance
    that the first quarter of this fiscal year would be very strong," Mr
    Sutcliffe said.

    "Earnings were ahead of budget, as were intake tonnes, but sales
    tonnes were down on the last quarter of fiscal 2006. Encouragingly, the
    strong contribution to earnings from the non-ferrous trading operations
    continued throughout the quarter.

    The Group also delivered on its prediction of achieving growth
    in Recycling Solutions through the acquisition of M+R, in Germany,
    which will make a positive contribution to second-quarter earnings."

    Giving a rundown on the outlook, Mr Sutcliffe said the market
    remained finely balanced with the continuing absence of Chinese demand
    offset by the re-emergence of other traditional buyers and ongoing
    strength in South East Asia and the Indian sub-continent.

    The company's sales program for the quarter is well advanced and
    trading is expected to continue within a reasonably narrow range.

    While the outlook for international pricing remains positive and
    freight rates have stabilised (albeit at higher levels) competition to
    buy feedstock continues, and is particularly intense in some markets.

    This is likely to result in an overall contraction in ferrous
    margin during the second quarter, the chief executive emphasised.

    The outlook for non-ferrous metals in the second quarter remains
    positive on the back of strong demand, low inventories, and the
    strengthening Chinese yuan.

    This view is evidenced by the ongoing contraction of discounts
    to LME for scr ap across Asian markets, which remain dominated by Chinese
    buying.

    While volatility will continue, the overall environment provides
    optimism for a continuation of current market conditions.

    A further update on the market and guidance on earnings for the
    first half will be provided at the company's annual general meeting on
    November 17.

    At that time, the company will also provide an update on the
    progress made on other acquisition targets currently under review.

    SHARE PRICE MOVEMENTS
    *********************

    Shares of Sims Group yesterday dipped 16c to $22.20 Rolling high
    for the year has been $23.59 and low $14.03. All-time high is $23.59.
    Dividend is 105c to yield 4.73 per cent. Earnings per share is 174.2c
    while p/e ratio is a modest 12.74. The company has 125.3 million with a
    market cap of $2.7 billion.

    Earlier in the month, the Sims Recycling Solutions division
    announced the purchase of Metall+Recycling GmH (M+R), expanding into
    Germany and extending its pan-European coverage.

    M+R has been described as one of Germany's most innovative
    recycling specialists.

    "M+R is a specialist recycler of electrical and electronic
    equipment and a processor of non-ferrous metals produced as a by-product
    of conventional scr ap metal shredding plants," Mr Sutcliffe told
    shareholders.

    "It utilises unique technology to maximise the recovery of
    metallic and non-metallic materials, and recycles over 100,000 tonnes
    annually.

    "The acquisition is consistent with the Group's objective to
    grow its Recycling Solutions division globally and establish itself as
    the world's leading e-recycler," Sutcliffe declared.

    Graham Davy, managing director for Sims Recycling Solutions
    in Europe and North America, said the acquisition "... delivers
    exceptional procurement, technical, marketing and processing synergies
    and will be rapidly integrated into our existing European business.

    "Our enlarged footprint will enable us to better service our
    growing international client base.

    "Our immediate post-deal objective is to utilise our combined
    technical know how to install a pioneering plastics separation plant at
    M+R's Bergkamen site to deliver further value added for our businesses
    in Europe," he added.

    Sims is already Europe's leading integrated e-recycler spanning
    the complete range of service offering under the WEEE Directive, from
    asset recovery services through to end of life electrical and electronic
    recycling, plastics separation and CRT glass recycling.

    BACKGROUND
    **********

    Sims Group, formerly Simsmetal Ltd, was listed on the Australian
    Stock Exchange in October 2005.

    The core business is metal recycling, with an emerging business
    in recycling solutions.

    Headquartered in Australia, Sims earns around 70 per cent of its
    revenue from international operations in the United Kingdom, continental
    Europe, North America, New Zealand and Asia.

    Sims has over 3,300 employees, annual turnover of $3.8 billion

    Sims Group and Hugo Neu Corporation have successfully merged
    their metal recycling operations to form the world's leading metal
    recycling organisation.

    This is a very exciting moment and milestone for the recycling
    industry, according to Mr Sutcliffe.

    The agreement behind this merger is consistent with Sims's
    strategy of expanding its core recycling activities internationally,
    while developing an innovative recycling solutions business.

    The merged Group is the only truly global metal recycling company
    with operations spanning four continents," Mr Sutcliffe claimed.

    "The merger is transformational for Sims Group and builds on our
    proven track record of international expansion. It also offers a solid
    platform from which to grow and to adopt a broader approach to
    environmentally sound post-consumer recycling.

    "The combination of Hugo Neu's recycling operations with Sims
    Group allows us to apply our combined talent, energy, vision and capital
    to create a leading global recycling and environmental company enhancing
    shareholder value with the support of our key asset - our people," Mr
    Sutcliffe concluded.

    ENDS

    Copyright © 2006 RWE Australian Business News. All rights reserved.
 
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