Why the Sims share price surged 8.95% on Monday
We examine why investors piled into the metal recycling company on Monday, 19 April 2021.
The Sims share price surged close to 10% on Monday after the company provided the market with, what appears to have been taken as, positive full-year earnings (EBIT) guidance.
Centrally, management said they now expected to book between $260 million and $310 million in full-year earnings before interest and tax.
Company Profile: Sims is a metal recycling and electronics recovery company, with over 200 facilities across 15 countries. The stock is listed in both Australia and its depositary shares are quoted OTC in the US.
Sims trades under the ticker SGM in Australia.
Providing more context to this earnings guidance, management said the company’s divisions were performing strongly in the second fiscal half, with proprietary intake volumes rising as a percentage of average monthly volumes, gross margins have improved as a result of higher scrap prices and the company continues to meet its fixed cost savings goals, on an annualised basis.
Alistair Field, CEO and MD of Sims, said of this update:
'It is pleasing to see the strong improvement in profitability driven by improved volumes, margin management, and achievement of targeted cost savings.'
'While the short term outlook still has risks that would results in earnings volatility, in the medium term Sims is well positioned,’ Mr Field added.
The company also added that it would be ‘voluntarily returning’ the $7.5 million in JobKeeper payments it received from the Australian government.
Sims share price response
The Sims share price would finish out Monday's session up 8.95% to $16.56 per share – a six month high for the company.
YTD the stock is up 22%.
Building on a Strong Half
Today’s earnings announcement builds on a strong half for the metal recycling company.
Back in February, Sims revealed a robust set of half-year figures, reporting impressive earnings and dividend growth, while noting that sales revenue declined.
On the top-line, sales revenue fell by 9.5%, coming in at $2,450 million. This, said the company was driven by 'lower sales volumes, the composition of sales, and the sold European Compliance Scheme operations.'
Despite revenue weakness, the company clocked up healthy earnings growth: Statutory EBITDA was up 480%, EBIT was up 182%, NPAT was up 158% and EPS was up 158%. It should be noted that the comps for the H1 FY21 earnings metrics were highly favourable, with Sims reporting negative EBIT, NPAT and EPS in the first-half of fiscal 2020.
Even so, of the $53 million in net profits generated in the half, Sims paid a 12 cent per share, fully franked interim dividend.
Management said these strong interim results were driven by ‘improved margins, higher prices, and lower operating costs.’
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