Sims share price surges following guidance well ahead of analyst’s expectations

By Trevor Hoey. Published at Jan 19, 2017, in Features

Sims Metal Management (ASX: SGM) announced on Thursday that it expects underlying earnings before interest and tax (EBIT) to be between $75 million and $79 million for the six months to December 31, 2016.

This exceeded previous guidance with the global metal recycling group indicating that the improved performance was assisted by cost reductions, optimisation initiatives and higher ferrous and nonferrous prices, particularly in the three months to December 31, 2016.

Strong cash flow combined with the sale of non-core assets has resulted in the company’s net cash position increasing from $242 million as at June 30, 2016 to approximately $300 million as at December 31, 2016.

Sims had previously pointed to a similar EBIT performance in the first half of fiscal 2017 to that achieved in the second half of fiscal 2016 ($63 million).

The midpoint of revised guidance implies year-on-year growth of circa 22%.

Analysts at Macquarie were relatively conservative with their first half forecasts when assessing the company in November, pointing to EBIT of $57.6 million.

The profit upgrade was announced after the market opened on Thursday morning, but resulted in a spike from $12.40 to a high of $13.45, immediately after trading resumed. This represents an increase of nearly 8% compared with the previous day’s close of $12.49.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

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