Sims Group (SGM) Recommendation

Submitted by Craig Strzelecki on 11 July, 2007 - 06:56

Sims Group (SGM) has a reiterated Outperform recommendation and a 12 month share price target of $30 from Australian sharemarket analyst Macquarie Research Equities. On Monday, US steel giant Schnitzer Steel reported a 3Q07 result well ahead of market expectations. The better-than-expected result saw the market bid the stock higher, finishing up over 16% on the day. The analysts believe the Schnitzer result bodes well for the Aussie listed Sims Group (SGM). The key positive from the Schnitzer result was the increase in margins, indicating an improvement in the sourcing/selling price relationship. Like SGM, Schnitzer collects scrap and sells it into the global markets. A large proportion of the scrap is either sold into Asia or is influenced by the Asian pricing environment. Over the past few years the relationship between US scrap prices compared to Asian steel prices has been negative – until recently. The fall in US steel prices has put downward pressure on US scrap prices while Asian steel prices have stayed relatively strong. This has helped to expand margins for Schnitzer and it will also help SGM in its 4Q07 result. SGM will benefit from the current strong market environment, however, there are some currency implications that will take the shine off. The currency is up 11% for 4Q07 compared to 4Q06. This will impact the result somewhat but we remain confident that margin improvement will occur. MRE believe If you remain bullish on global bulk commodities then you should also be bullish on SGM. The fundamentals look good and MRE believe SGM will continue to diversify earnings. There is medium-term upside risk to earnings. Sims Group (SGM) was a loser of the week in March 2007.

Sims Group Limited is listed on the Australian Stock Exchange (ASX) under stock code SGM. You can view their investor website here. SGM was listed on the ASX on 21 October, 2005. Paul Mazoudier is the Chairman of Sims Group and the CEO is Jeremy Sutcliffe. SGM is involved in global metal recycling and innovative recycling solutions. Browse for Australian stockbroker recommendations. Read a previous Sims Group recommendation. Check your charts and good luck with your share trading!

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