Recycling of any commodity can contribute towards the development of an economy. When it comes to the recycling of metals, there are numerous benefits, starting from environmental benefits to economic benefits. Metal recycling helps in preserving resources, reducing emissions, creating employment, and managing energy consum0070tion and conservation.
In this article, we would be discussing one well-known ASX-listed metal recycling company, Sims Metal Management Limited (ASX: SGM), boasting presence in the Australian market since 1917. In more than 100 years, the company achieved robust growth, transforming from a small recycling business to a leading metals and electronics recycler with global reach in more than 20 countries and 250 facilities.
On 8th November 2019, the benchmark index, i.e. S&P/ ASX 200 closed the day’s trading at 6,724.1 points, reflecting a fall of 0.04% from its previous close. Moreover, the S&P/ASX 300 Metals and Mining (Industry) declined by 0.78% to 4,321.8 on the same day. However, SIMS Metal, which is a metals & mining sector player, closed the trading session in green, with a rise of 4.016% at a closing price of $10.100 per share on 8th November 2019.
The company has a market capitalisation of $1.97 billion with approx. 202.9 million total outstanding shares. The stock’s 52-week low and high is $8.530 and $13.390, respectively.
Let us zoom more into this metal recycling stock and its recent developments.
About SIMS Metal Management Limited
Sims Metal Management Limited (ASX: SGM), got listed on the ASX in 2005, is engaged in the processing, purchase and sale of ferrous and non-ferrous recycled metals. The company also caters to the commercial sector with environmentally responsible solutions, targeted towards the disposal of IT assets and other post-consumer electronic products.
On-Market Share Buy-Back
Recently, the company in a release dated 8th November 2019 communicated that it would continue an on-market share buy-back program for a maximum of 10% of its issued capital, or around 20.3 Mn shares.
- The buy-back program is anticipated to begin from 22nd November 2019 and remain in place for a period of up to 12 months.
- The number and timing of purchased shares would be dependent on the share price of SGM as well as market conditions.
- The company keeps the right to vary, suspend or terminate the buyback program at any time.
- The program is aimed at offsetting the dilution effect caused by the awarding of shares to employees under the company’s Employee Long Term Incentive Plan over the Plan cycle from 1 July 2019 through to September 2020.
In an ASX announcement in early November 2019, the company unveiled that considering the concerns raised by few investors regarding the role of Mr Mike Kane as SGM’s Chief Executive Officer, he decided that he would not stand for election at the Annual General Meeting of 2019.
In addition, he would retire from the Board of the company on 4th November 2019.
Agenda of 2019 AGM
In order to finalise few business resolutions and consider financial statements, the company is scheduled to conduct its Annual General Meeting of 2019 on 14th November 2019 in Southbank, Victoria.
Resolutions to be considered are
- Adopt the remuneration report for 2019
- Approval related to renewal of proportional takeover provisions in constitution
- Re-election of Director – Deborah O’toole Llb, Maicd
- Election of Director – Mike Kane BA, JD, MS
- Election of Director – Hiroyoto Kato
Last financial year FY2019 (ended 30th June 2019) was a challenging year for all recycling companies, globally. However, despite these market challenges, the company managed to register strong cash flows and encouraging results, backed by the smart execution and disciplined deployment of capital.
- The company reported underlying NPAT of $161.9 million;
- Underlying diluted EPS stood at 78.8 cents;
- Its investment in material processing facilities coincides with customers who have a need of higher specification products. In addition, the company is well-positioned for capturing an increase in share of this demand;
- The company posted sales revenue amounting to $6,640 million for the period and experienced a rise of 3% against FY18, primarily on account of sustained volumes;
- Underlying EBIT of the company amounted to $230 million in FY19 as compared to underlying EBIT of $275 million in FY18. The second half of the year also witnessed challenging market conditions. However, all operating divisions reported a decent 2H performance in part as a result of investment in technology except for the North American business.
When it comes to performance by the region, North America Metals reported an underlying EBIT of $100 million in the financial year 2019, down from $105 million in the prior corresponding period. Due to challenging market conditions, metal margin witnessed a decline.
Strong demand from domestic steel mills, internal growth, full acquisition of New Zealand JV as well as improvement initiatives, which were partially offset by decreasing non-ferrous prices, helped the company to achieve an 11.2% year-on-year rise in proprietary sales volume during the year for Australia New Zealand Metals.
- Underlying EBIT for Australia New Zealand Metals stood at $107 million in FY19 in comparison to $97 million in FY18;
- For UK Metals, underlying EBIT was reported at $20 million;
- For Global Electronics Recycling, the value reached $26 million;
- The company’s underlying share of results from SA Recycling was $36 million.
SGM also declared a fully franked final dividend amounting to 19.0 cps for FY19. This brought the total dividend to 42.0 cps for the year, which demonstrates an underlying payout of 53%.
- SGM announced a growth strategy for its current lines of business as well as expansion into new environmental adjacencies in the month of April 2019;
- The company made a decent progress in advancing its growth strategy in FY19 by increasing North American Metals’ non-ferrous volumes and tonnes of cloud material recycled against FY18;
- Sims is in a robust position to move forward its strategy in FY20 with growth targets set throughout all key priorities.
Trading Guidance for 1H FY20
- In expectation of no further deterioration in market conditions, the company is anticipating underlying EBIT loss in the range of around $20 million - $30 million for 1H FY2020;
- Underlying EBIT profit for FY20 is anticipated in the ambit of $20 million- $50 million;
- As stated by key personnel of SGM, the short-term market decline from the scrap price crash would be worse in comparison to originally expected.
However, Sims Metal Management expects its strong balance sheet, in addition to disciplined approach towards capital expenditure and cost management, to help the company in passing through the period of market volatility and place in a strong strategic position when the market normalises.
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