Date of Publication
1 Nov 2002 Code Last +/- %
SMS 752 +15 +2.0%
Snapshot taken at 12:38:41 PM
Monday, 9 December 2002 AEST
Simsmetal (SMS.AX) Buy
Pollution Control Australia
[email protected]/10/2002: A$7.10
12 month range: A$7.30 - 5.18
Valuation: A$7.75
Price Target: A$7.75 (+9%)
Market Cap: A$615.8m/US$340.7m
Shares on Issue: 86.7m
Average Volume (000's): 233
Source: Sanford
Source: Company Data and Sanford Estimates
Q1 result.
Simsmetal today reported Q1 FY03 NPAT of $18m, up 80% on pcp. As alluded to in our note of 28/10/02 the result was driven by a strong scrap pricing environment over the period.
Shredder production was up some 10% across the group.
We remain comfortable with our FY03 profit forecast of $61.9m post this result and reiterate our Buy rating.
Event
Q1 result.
Impact
We have made no change to our estimates at this stage. If present ferrous scrap prices are sustained our FY03 forecasts may prove to be conservative.
Valuation & risks
No change to our price target. We value SMS on a price/book ratio. Book equity is $3.76 per share. The group is making a ROCE of 21% after amortising goodwill, suggesting to us that 2x book is appropriate. This equates to $7.75 per share.
The prime risk to our valuation is ferrous scrap pricing, which tends to be volatile and opaque.
Action
We reiterate our Buy rating.
In our view, this was a very strong result, with the record quarterly profit representing 80% growth on pcp. The strong performance was driven by a favourable ferrous scrap pricing environment – prices of around US$118/tonne were achieved during the period.
In the absence of any excessive market volatility through the balance of FY03, we remain comfortable with our FY03 forecasts.
strong buy above 750close as this is long term resistance
john
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