Sims guides to higher earnings for FY22

Sims (ASX: SGM) was up 0.66% at the open after the global leader in metal recycling confirmed underlying earnings for the year ended 30 June 2022 are expected to be in the range of $750m to $770m.

Formerly Sims Metals Management, Sims is a large-cap ($3.5bn) clean tech stock which focuses on buying, processing and selling ferrous and nonferrous metals and operates from more than 200 facilities across 15 countries.

Management advised the market this morning that high metal prices and improved metal volumes explain why the company is guiding to higher earning than the company’s FY21 result.

Management also noted that shipments scheduled to occur close to the year could potentially impact earnings for FY22 or FY23.

Conditions remain challenging

Commenting on today’s brief but meaningful update, CEO Alistair Field reminded investors of how successful the company’s strategy been in navigating the challenging price volatility experienced in the second half of FY22.

“Due to geopolitical and economic uncertainty and the associated volatility, we expect these challenging conditions to remain as we move into the first quarter of FY23,” noted Field.

“We are also closely managing the impacts of freight and logistics volatility, and actively seeking medium-term efficiency gains to assist in mitigating inflationary cost pressures across the company.”

Fundamentals

Growth in trading margins saw the company deliver first half FY22 earnings above guidance.

While underlying earnings of $361.7m at the half year FY22 was 541.3% higher than half year FY21, trading margin increased by 45% due to disciplined management of the buy / sell spread as selling prices increased.

At the half year, management also noted macro-trends there were driving demand for recycled metal. These include:

• Stimulus spending is increasing demand for steel-intensive infrastructure spending and driving retail consumption.

• Post consumption scrap is also increasing, which is a positive for both ferrous and non-ferrous metal recycling.

• Global decarbonisation of steel making, and electricity generation industries.

At the half year, the company undertook to distribute $135.0m in cash payments, 50% of underlying profit, comprising a 41 cents per share dividend and an on-market share buyback equivalent to $54.0m, to be completed in second half FY22.

Sims: A 12 month share price snapshot.