Sims Metal Management Ltd shares surge higher on huge profit result

The Sims Metal Management Ltd (ASX:SGM) share price has been a big mover after releasing a bumper profit result. Should you invest?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Sims Metal Management Ltd (ASX: SGM) share price is on course to finish the week with a strong gain.

The shares of the metals and electronics recycler are up 6% to $15.06 following the release of its full-year results.

Key highlights include:

  • Sales revenue up 9.2% to $5,079.4 million.
  • Underlying EBITDA increased 59.8% to $294.7 million.
  • Underlying NPAT up 216.1% to $120.1 million.
  • Statutory NPAT of $203.6 million.
  • Diluted earnings per share of 59.9 cents.
  • Full-year dividend of 50 cents per share.
  • Underlying return on capital of 8%.
  • Outlook: Targeting an underlying return on capital of 10% in FY 2018.

All in all, I felt this was a very strong result from Sims Metal Management and I'm not too surprised to see its shares rally higher. Especially considering management revealed that ferrous scrap metal prices have lifted around 15% since the start of FY 2018.

According to management, this is the result of steel exports from China declining. Lower export volumes have eased competitive pressures on steelmakers outside China, which has supported higher global demand for ferrous scrap metal.

A key driver of the strong result was its North America Metals segment. That segment reported underlying EBIT of $72 million in FY 2017, compared to underlying EBIT of $2 million in FY 2016.

Elsewhere its ANZ Metals segment delivered underlying EBIT of $63 million in FY 2017, up from $40 million in FY 2016. Its Europe Metals segment saw underlying EBIT lift to $35 million from $19 million in FY 2016.

And its Global E-Recycling segment delivered underlying EBIT of $20 million, up sharply from $8 million in FY 2016. This was thanks largely to a strong performance in Europe and improved prices for copper and precious metals.

Finally, it is worth pointing out that the $84 million difference between its statutory NPAT and underlying NPAT relates primarily to the gain on sale of property, as well as the recognition of previously written-off deferred tax assets.

Should you invest?

While I think things are improving greatly for Sims, I'm not a big fan of its valuation at present. Priced at 25x underlying earnings, I think its shares are a little on the expensive side.

In light of this, I think there are better options out there for investors in the sector such as Galaxy Resources Limited (ASX: GXY) and South32 Ltd (ASX: S32).

Motley Fool contributor James Mickleboro owns shares of Galaxy Resources. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »