Reporting Season

Sims tops earnings, expects momentum to build in second-half

Tue 15 Feb 22, 1:56pm (AEST)
Metals Recycling

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Key Points

  • Sims first-half profits of $269m beat analyst forecasts of $245m
  • Inflation is playing into Sims favour, with margins lifting 45%

Sims (ASX: SGM) shares are up 17% after the metals and electronics recycling company topped its own guidance and analyst expectations in the first-half of FY22.

Financials at a glance: 

  • Revenue of $4.3bn, up 74% 

  • Net profit of $269m, up 622% 

  • Interim dividend of 41 cents per share, up 240% 

  • $54m share buyback to be executed in the second-half

Bell Potter and Citi had forecasted first-half profits of $245m. 

Sims ticks all the boxes 

“In terms of the near term outlook for commodity demand, while growth slowed in China more than we anticipated in the second half of calendar year 2021, we see the headwinds easing over the course of 2022,” said CEO Alistair Field. 

“We significantly improved our operating cash flow from 2H FY21, increased cash returns to shareholders, and maintained the strength of our balance sheet. Intake volumes grew strongly and were close to pre-COVID levels.”

Favourable macro-trends 

Ferrous and non-ferrous metal prices rose 30% and 60% respectively in the first-half compared to a year ago.

Metals price inflation has more than offset any inflationary pressures on business costs, with trading margins up 45%.

To-date, Sims said that commodity prices are tracking higher than first-half averages and ferrous prices remain "elevated, albeit volatile".

Over the medium-term, Sims expects ongoing infrastructure spending and the global transition to low-carbon solutions to drive demand for recycled metals.

Initial broker thoughts

The first-half result impressed analysts at Macquarie, notably the 41 cent dividend coming in well above their 27 cent forecast.

Macquarie is bullish on the long-term outlook for scrap metals.  

The broker reiterated an Outperform rating with an $18.65 target price (5% upside). 

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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