Just before 2:00pm this afternoon, Sims Metal Management Ltd [ASX:SGM] shares were trading at $9.07, which is a whopping $1.87 below Friday’s market price. That’s a troubling 17.12% decline.
Earlier this morning, Sims released an earnings update on the ASX. The disappointing figures in this update are likely the cause of the fall in share value, as investors lose faith in the company’s potential for future growth.
Sims Metal’s earnings results less than ideal
The report shows a decrease in underlying EBIT (earnings before interest and taxes) for many segments of the company in 1HFY19 compared to 1HFY18.
The North America metals segment is down. ANZ metals and Global E-Recycling segments are down 4.6%, 1.4% and 4.6% respectively.
Of more concern are the drops in SA recycling and Europe metals EBIT. SA recycling currently has an EBIT of $16.8 million, which is 33.1% lower than the EBIT for the corresponding period in FY18.
As for the Europe metals segment, it has gone from a $11.6 million EBIT to just $1.4 million in 12 months. That’s a highly concerning 87.9% decline.
Sims attributes a significant amount of the Europe Metals EBIT drop to three main factors. Firstly, much of this segment’s success comes from access in the deep sea Turkish market to provide a premium product price, but ‘challenges in the Turkish economy have eradicated this premium in FY19’.
The other factors include a demand for higher quality ferrous scrap metals by Turkish customers, as well as a decrease in non-ferrous product demand such as copper wire due to the ‘National Sword’ policy in China, which is seeking to mitigate illegal smuggling of foreign waste.
What’s install for Sims Metal’s share price in 2019
The CEO and MD of Sims, Alistair Field, pre-empted these figures with a statement on the company’s behalf:
‘The first half has been challenging for all recycling companies globally and will continue to be so for the near future. We are meeting these challenges and will maintain our focus on capitalising on our strengths and on improving underperforming business.
‘I am confident that our strategy of producing high quality products that better meet the needs of our customers is key to our long-term success.’
But with the drop in the North America metals segment being attributed to ‘volatility in the market…due to the uncertainty surrounding tariffs, trade wars and Turkey’s position in the market,’ which are factors out of Sims’ control, it’s difficult to know for sure if their current situation will improve.
Sims expects a 1HFY19 underlying EBIT of around $110 million, which seems to have fallen short of investors’ expectations.
That said, Goldman Sachs analysts expect a full year FY19 EBIT of around $314 million, which is 4.7% greater than FY18 results.
For Money Morning
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