What’s powering Sims’ (ASX:SGM) bull run today?

Source: Morten B, Shutterstock

Metals and electronics recycler Sims Limited (ASX:SGM) shared its trading update and forecast earnings on Monday.

Post Announcement, the stock price jumped significantly to become a top gainer on the Australian benchmark AXJO, and was spotted trading 10.197% higher at A$16.750 per share at 1:48 PM AEST.

The update

The Company announced that it is anticipating an Underlying EBIT for full year FY21 to hover somewhere between A$260 million and A$310 million in comparison with the loss of A$58.1 million recorded previous year.  

The Company shared via an ASX release that its business divisions were performing strongly.

Also read: Sims Limited bets big on metal recycling

Source: © Dvande | Megapixl.com

The major driving forces behind these likely numbers are:

  • Exclusive intake volumes for third quarter FY21 have risen to around 95% of FY19 average monthly volumes as compared to 85% in first quarter FY21.
  • Elevated scrap rates have improved the gross margin per tonne and that margin has been managed in a much better way.
  • Sustained accomplishment of annualised predominantly fixed cost savings in excess of A$70 million in FY21 as compared to FY19.
  • A key input from SA Recycling propelled by soaring scrap rates, especially for zorba-linked products, great intake volumes, and good margin management.

Data Source: Company ASX and Media Release 19 April 2021

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Meanwhile, as per the Company, the forecasted FY21 results mat face the following risks:

  • Sims’ facilities and suppliers’ facilities or customer facilities might get hampered due to COVID-19 disturbances.
  • Illiquid demand might cause instability in ferrous and non-ferrous prices.
  • Macroeconomic and geopolitical risks.

The Company also revealed that it had received A$6.5 million and A$7.5 million for FY20 and FY21 respectively under the JobKeeper scheme.

As Sims has been improving on the finance and available cash front, the Company is likely to voluntarily return A$7.5 million to the government of Australia.

Market Sentiments

According to Refinitiv, Financial Research firm Jefferies stated that guidance indicates an EBIT of A$229 million in second half of 2021 at the midpoint of guidance. This is SGM's highest in a decade.  The firm expects EBIT to level up significantly due to buoyant scrap pricing. However, the firm believes that this guidance is undeniably stronger than anything expected.

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The stock closed the day’s session at A$16.560, up 8.947% from the previous close.

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