Sims Limited
1Ratios such as P/E, EPS, ADY are on Trailing Twelve-Month basis, which are subject to change based on certain factors such as company performance, and stock price changes.
2ROE has been taken for the Half-Year Ending December 2021.
SGM Details
Initial Substantial Shareholder: Sims Limited (ASX: SGM) is an ASX-listed which recycles electronics and metals. Recently, JPMorgan Chase & Co. and its affiliates became its substantial shareholder by gaining a voting power of ~5.0%.
Class Action Settlement: On 10th June 2022, the company finally settled long due shareholder class action, filed against Sims on 15 February 2019 in the NSW Registry of the Federal Court of Australia by executing Deed of Settlement. The amount approved under the settlement is $29.5 million (including interest and costs), settlement is without any admission of liability and subject to Court approval. SGM expects the net cost will be ~$15 million after the receipt of insurance proceeds.
1HFY22 Summary: The below mentioned picture gives an overview of sales volume and EBIT information of half-year ended 31st December 2021:
Financial Performance (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to risks arising from the freight cost volatility, increasing fuel prices and regulatory uncertainties.
Outlook: On 8th June 2022, SGM provided the FY22 guidance through Macquarie Conference, where the company expects its EBIT to be in the range of ~$750 million - ~$770 million. Yet, the revenue recognition and EBIT might get impacted by the shipments that are scheduled to occur close to the year end. High metal prices and improved metal volumes have been the main drivers of improvement over the FY21 results; however, the price volatility challenges are anticipated to prevail in 1QFY23.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of SGM is currently trading below its 52-week low and high levels of $12.090 - $22.800, offering a decent opportunity for accumulation. The stock has been corrected by ~16.77% in the past one month. The stock has been valued using a P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average P/E multiple, considering the COVID-19 disruptions and steel price volatility, etc. For this purpose of valuation, few peers like Vulcan Steel Ltd (ASX: VUL), Fortescue Metals Group Ltd (ASX: FMG), and Deterra Royalties Ltd (ASX: DRR) have been considered. Considering the expected upside in valuation, rising net margins, growing sales volume, EBIT expectations, current trading levels and key risks associated with the business and price volatility, we give a ‘Buy’ rating on the stock at the closing price of $15.380, down by ~4.054% as on 16th June 2022.
SGM Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.