Stocks’ Details

Sims Limited

FY20 Financial Update: Sims Limited (ASX: SGM) is in the business of buying, processing, and selling ferrous and non-ferrous recycled metals. It also provides environmentally responsible solutions for the disposal of post-consumer electronic products. The market capitalisation of the company as on 29 December 2020, stood at ~$2.57 billion. In FY20, the company was not able to generate profits, given the COVID-19 disruption, and it reported a loss of $265.3 million during the year. It reported an underlying EBIT loss of $57.9 million during the year, down from a positive of $230.3 million in FY19. The pandemic reduced intake volumes and sales prices in its key markets. SGM had a comfortable net cash position of $110.4 million as on 30 June 2020. Despite the COVID-19 headwinds, it rewarded its shareholders through buybacks and dividends during the year.

FY20 Financial Performance (Source: Company Reports)

Outlook: SGM has structured itself amidst the market volatility through cost-cutting initiatives. It will look to implement ERP for providing real-time global trading and inventory positions, which will aid in further cost reductions. Despite the COVID-19 pandemic, the company was able to grow its customer base and volumes during FY20.  However, due to pandemic restrictions, it had difficulty obtaining good site access and expects cloud volumes to remain flat at ~25,000 tonnes, in FY21.

Valuation Methodology: P/CF Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company experienced a difficult FY20 due to the COVID-19 volatility, and it witnessed a drop in ferrous scrap prices and low Zorba prices. As per ASX, the stock of SGM gave a return of 62.09% in the past three months and a return of 63.9% in the past six months. As per ASX, the stock of SGM is trading close to its 52-weeks’ high level of $13.190. On a technical front, the stock of SGM has a support level of $12.257 and a resistance level of $13.188. We have valued the stock using a price to cash flow multiple based illustrative relative valuation and have arrived at a target downside of lower double-digit (in % terms). For the purpose, we have taken peers such as BlueScope Steel Limited (ASX: BSL), CSR Limited (ASX: CSR), Adbri Limited (ASX: ABC), to name a few. Considering the current trading levels, muted financial performance, and steep price movement in the past months, we are of the view that most of the positive factors are discounted at current trading levels. Hence, we suggest investors to wait for better entry level and give an “Expensive” rating on the stock at the current market price of $13.00, up by 1.562% as on December 29, 2020.

Bingo Industries Limited

FY20 Financial Update: Bingo Industries Limited (ASX: BIN) provides recycling and waste management solutions. The market capitalisation of the company as on 29 December 2020, stood at ~$1.65 billion. The company provided robust FY20 financial performance, with statutory revenue growth of 26.7% to $509.7 million, compared to $402.2 million in FY19. The top-line increase was primarily due to shift to volume strategy in H2FY20 in NSW. Underlying EBITDA grew by 40.8% to $152.1 million during the same period. There was an improvement in the underlying operating free cash flow by 37.42% to $160.1 million in FY20, from $116.5 million in FY19. BIN reported a PAT of $66.01 million during FY20.

During the first four months of FY21, the company continued with its strong momentum in post-collection volumes. However, the average daily collection volumes continue to remain affected by the disruption brought in by the COVID-19 pandemic.

Key Financial Metrics Performance (Source: Company Reports)

Outlook: In Q1FY21 prices have remained below pre-COVID-19 levels, but they have become stable across the business during the same period, with a modest uplift since September 2020. BIN expects infrastructure activity to remain decent in FY21, assisted by the present pipeline of projects and COVID-19 economic stimulus.  

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company expects EBITDA margin to decline in FY21 by ~200-300 bps, before rebounding to its long-term target of 30%. However, it expects a significant upside in FY22 and beyond, with an increase in the addressable market size. The stock of BIN went down 5.26% in the past one month. As per ASX, the stock of BIN is trading above its average 52 weeks’ trading range of $1.470-$3.470. On a technical front, the stock of BIN has a support level of $2.411 and a resistance level of $2.659. We have valued the stock using a price to cash flow based illustrative relative valuation and have arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers such as Qube Holdings Limited (ASX: QUB), Atlas Arteria Group (ASX: ALX), Downer EDI Limited (ASX: DOW), to name a few. Considering the current trading levels, present pipeline of projects and positive guidance provided by the management, we recommend a ‘Hold’ rating on the stock at the current market price of $2.52, down by 0.396% as on December 29, 2020.

Pact Group Holdings Limited

FY20 Performance Update: Pact Group Holdings Limited (ASX: PGH) is engaged in providing packaging solutions to consumer and industrial sectors. The market capitalisation of the company as on 29 December 2020, stood at ~$880.62 million. The Group reported decent financial numbers in FY20, with revenues of $1.8 billion, which was in-line with the prior year. EBITDA grew by 1% to $302 million when compared to the pcp. Net profit during the period was at $88.84 million. There was also a reduction of $70 million in net debt during FY20.

The company has reported earnings momentum in its reuse business, assisted by increased volumes in the USA and an improvement in retail clothing demand, in its trading to date results in FY21. Volumes have been also high in the contract manufacturing segment when compared with the same period of last year.

FY20 Performance Highlights (Source: Company Reports)

Outlook: The company aims to achieve superior financial and operational performance by 2025. It is expecting an ROIC ~15%, with a strong balance sheet where leverage will be maintained below 3x.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: PGH reported decent financial performance in FY20, and has seen increased traction in volumes in its trading to date performance. The stock of PGH gave a return of 14.09% in the past three months and a return of 4.85% in the past one month. As per ASX, the stock of PGH is trading close to its average 52 weeks’ high level of $2.920. On a technical front, the stock of PGH has a support level of $2.268 and a resistance level of $2.781. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Orora Limited (ASX: ORA), CSR Limited (ASX: CSR), Nufarm Limited (ASX: NUF), to name a few. Considering the current trading levels, stable income streams and increased traction in volumes, we recommend a ‘Hold’ rating on the stock at the current market price of $2.59, up by 1.171% as on December 29, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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