Sims Metals (SGM) share price collapses

Stock

Sims Metals (SGM) $9.10 as at 28/10/2019

Event

The scrap metal trader Sims has rolled over today, down 10% after the company updated guidance for FY20 just 6-weeks after their last trading update. In today’s update Sims has once again guided the market lower as further pain in the scrap market as well as rising inventory levels impact earnings saying “the scrap price crash will be worse than originally anticipated.”

The company noted rising inventories, particularly in the UK, will provide a significant drag on first half profits given this inventory will be sold at a loss. In the medium term, suppliers are reducing volumes to the market in the hope of a recovery in prices resulting in margins contracting for Sims. The company blamed auto sales, global growth and manufacturing and trade wars as the drivers of the markets weakness.

As a result of the issues, EBIT is now expected to fall into a loss for the first half of $20-$30m before recovering in the second half for a full year EBIT of $20-50m in FY20. This compares to market expectations which had SGM priced for a $151m full year EBIT. This guidance also relies on scrap prices stabilizing at current levels or rising from here. The company also noted that the strong balance sheet will help SGM navigate the current weakness in the market while also putting it in a stronger position when it stabilizes.

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Market Matters Take/Outlook

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