Sims benefits from Russia/Ukraine war: Scrap metal prices on a tear

As the war in Ukraine stretches on and Russia - one of the top scrap metal exporters - now facing sanctions, the resulting surge in scrap prices has helped to push shares in Sims Ltd (ASX:SGM) to the highest point in a decade and within the range of target prices set by brokers.

Shares in the Australian scrap metals seller surged nearly 25%, to $20.62, after the company last month reported a 622% jump in first half FY22 net profit after tax, to $269.3m, beating analysts’ consensus forecasts by a wide margin.

The company attributed the standout result to higher volumes and prices of scrap ferrous and non-ferrous metals, as well as rigorous cost management.

Higher valuation, but analysts still bullish

But even though Sims current share price is looking decidedly more toppy, some brokers expect the good times to keep rolling in FY22.

Analysts at UBS on March 8 published a note retaining their existing Buy rating, with a target price of $20.30 - above the previous trading day close of $19.09.

UBS expects strong volumes and prices to continue into the second-half of FY22. The broker also expects Sims to boost non-ferrous metal volumes, where margins are heftier.

Mixed response

Goldman Sachs took a similar bullish line in its note, released after Sims’ earnings announcement.

The broker expects circa 5% increased metals volumes compared to the first half, with full-year earnings increasing by nearly a third by 2025 against 2021 levels.

However, other analysts were more cautious, with Macquarie downgrading Sims to Neutral, citing the share price reaction following the earnings result, and the increased risk of Ukraine war affecting key market Turkey.

Turkey depends on Russia for around 33% of its natural gas imports, and interruptions to that supply could diminish demand for scrap there, Macquarie noted.

Sims has significantly outperformed the Industrials Index over the past 12 months.