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SGM delivered a strong 1H22 driven by higher volumes and selling prices.

Investment Thesis
Improvement in scrap volumes.
Improvement in scrap prices across key regions.
Cloud recycling could add significant earnings over the long run.
Investment in improving scrap quality should improve SGM’s competitive position.
Undemanding valuation relative to its own historical average and ASX200 Industrials Index.
Self-help initiatives to support earnings.
Improving Return on Capital (ROC).
Current on-market share buyback.

Key Risks
Significant downturn in global economy.
Trade war between China and the U.S. escalates.
Weaker scrap prices in key regions.
Lower volumes.
Regulatory changes – particularly around China’s anti-pollution policies.
Cost pressures impacting group margins.

1H22 Results Highlights
North America Metal (NAM) sales revenue of $1,997.2 was up 87.2% driven by higher sales prices and sales volumes (up +11.3%). Intake also improved over the period and returned to pre-Covid levels. Trading margin of $421.6m was up +74.6% as a significant proportion of the trading margin spread in percentage terms was retained due to higher commodity prices. Segment underlying EBIT of $142.2m was up +478%.
Australia & New Zealand Metal (ANZ) revenue of $815.6m was up +70.5% driven by +72.2% increase in average selling prices. Sales volumes were largely unchanged on pcp. Trading margin of $225m was up +58.8%. Costs were up +12.3% driven by higher contract labour costs to cover staffing shortages and inflationary pressures. Segment EBIT of $94.9m was up +243.8%. Management noted that despite Covid disruptions in Australia and New Zealand, intake volumes showed improvement and recovered to near pre-Covid levels.
UK Metal sales volumes was up +5.8% and average selling prices up +64.4%, leading to sales revenue of $744.4m increasing +73.9%. Management noted that Trading Margin of $115.7m was up +39.6% “due to market structure and competitive dynamics, UK was not able to hold onto as much of the sales price increase as NAM or ANZ.” Segment underlying EBIT of $29.4m was up +180% on pcp. Management noted that whilst the intake volumes in 1H22 were consistent with pcp, they remain below pre-Covid levels.
Sims Lifecycle Services reported revenue of $166m (up +9%) and underlying EBIT of $9.9m was up +45.6% driven by +44.4% growth in repurposed units and +9% growth in sales revenue. SA Recycling reported sales volumes growth of +18.6% and underlying EBIT (50% share) growth of +427.5% to $128.7m.

Company Profile
Sims Ltd (SGM) collects, sorts and processes scrap metal materials which are recycled for resale. SGM’s segments include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of steel semi-fabricated products.

(Source: Banyantree)

General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.