SIMS METAL MANAGEMENT LIMITED 

Buy-back of shares announced: Sims Metal Management Limited (ASX: SGM) is involved in the operations of buying, processing, and selling ferrous and non-ferrous recycled metals. On 16 October 2018, Sims Metals announced that it will establish an on-market share buy-back program for up to 10 per cent of the Company’s issued capital and this share buy-back program is expected to commence after the holding of the Company’s Annual General Meeting on 8 November 2018, and it is to remain in place for a period of up to 12 months. After the release of this the share prices of the company witnessed an increase of 3.56 percent as on 16 October 2018. In FY 2018, the sales revenue of the company increased by 26.9 percent to $ 6,448 million compared to the last year, mainly due to the 13.3% increase in the sales volumes. The underlying EBIT of the company increased by 53.1% to $279 million in FY 2018. However, reported NPAT was down 0.05% to $203.5 million for the year ended 30 June 2018. The stock has a good dividend yield around 4.39%.

The group did not witness year-on-year improvement across its key jurisdictions but there was an increase in ordinary dividends. However, the group paid higher cash taxes and thus cash flow from operating activities of A$252.1 million in FY18 was down by A$14.3 million from FY17. The group also flagged for having underlying earnings before interest and tax (EBIT) of between $58 million and $63 million for the first quarter of FY 2019, and this has been below the expectations. SGM also aims to improve its recycling business that has not been showing a favorable performance.

Stock Performance: In the past three months, the share price of the company decreased by 24.03 percent as on 15 October 2018, and traded at a PE level of 11.950x. SGM’s shares traded at $12.510 with a market capitalization of $2.47 billion as on 16 October 2018. The stock of the metals and electronics recycler looks at a higher side and we maintain our “Expensive” recommendation at the current price of $12.510 while it finds support at $12.327 and resistance around $12.717 with some weakness expected in outlook for the group. Meanwhile, the stock has crossed above its 20 Day Moving Average while relative strength lacks some luster.
 

G8 EDUCATION LIMITED 

Putting strategy in place for improving fundamentals: G8 Education Limited (ASX: GEM) is involved in the business of operating and managing child care centers. In the first half of FY 2018, the total revenue of the company increased by 7.6 percent to $396.4 million against the prior corresponding year. The wage costs of the company increased by $7.2 million due to regulatory changes and changes to staff ratios. The underlying NPAT of the company decreased by 23.9 percent to $ 25.6 million in the first half of FY 2018. G8 has been trying to improve the foundations of its business, and has transitioned to the new subsidy regime while showcasing resilience in terms of performance. While the sector is highly fragmented with structural growth drivers, the challenges on oversupply keep on impacting the group. On the other hand, group’s cashflow generation has been strong with cash conversion of 99% in CY18 H1. It has purchased businesses of $29 million in relation to acquisition of 7 centres and deposits for centres to be delivered in CY18 and CY19. Looking forward and basis growth noted in July and August, the group expects to benefit from new Child Care Subsidy. Further, incremental earnings from prior year acquisitions have been estimated to be $7m in CY18 H2. GEM aims to strategize its moves to positively impact the occupancy in FY19. GEM is now expected to announce trading performance as part of investor day in late October or early November.
Stock Performance: In the past three months, the share price of the company decreased by 18.73 percent as on 15 October 2018, and traded at a PE level of 12.260x. GEM’s shares traded at $2.110 (up 3.4% on October 16, 2018) with a market capitalization of $928.97 million and 12.99% of annual dividend yield. The stock has been into resistance at its 50 day moving average while it finds support around $ 2.06. We maintain a “Hold” on the stock at the current price of  $2.110.

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