Sims Group (SGM) Update

Submitted by Jim Thesiger on 13 June, 2008 - 13:13

Sims Group (SGM) has a reiterated outperform recommendation with a 12 month price target of $43.12 from Australian stockmarket analysts from Macquarie Research.

Sims Group (SGM) Simmering Nicely

Macquarie Research (MRE) have upgraded their recommendation for Sims Group (SGM) to Outperform with a 12 month price target of $43.12. SGM closed at $35.91 yesterday and the share price has been relatively unaffected by the global economic turmoil over the past year - trending higher, but off its year-high of $39.10. SGM provides a unique exposure to rising scrap metal prices while MRE expect freight rates to decline in 2009. SGM has a diverse product and geographic exposure due to the recent Metal Management merger and subsequent bolt-on acquisitions. With its solid balance sheet, MRE expect Sims to continue its acquisition trail.

Sims Group has become the largest listed metal recycler in the US with a balanced exposure to exports and imports. The increased US footprint should result in higher margins in the 2nd half of 2008 as economies of scale, strategic position and higher scrap prices offset the adverse impact of a weak US dollar.

The critical factor in this increasingly competitive environment is scrap sourcing costs combined with MRE’s anticipation of lower freight rates and a stronger US dollar in 2009.

MRE believe there is upside potential to their scrap price forecasts of USD$435/t in 2008 and USD$629/t in 2009 due to strong correlation with steel prices and sustainable high levels of steel demand and production growth.

SGM continues to invest in recycling solutions which should insulate further earnings and also position the company well for further sustainable investments in the future.

Reiterating MRE’s outperform recommendation with a 12 month price target of $43.12.