SGM

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

Australian investors can gain exposure to the steel sector in a number of ways, but a more direct play would be to invest in stocks whose earnings are leveraged to the steel cycle. Australian sharemarket analyst, Macquarie Research Equities (MRE), have provided a steel sector update with the three stocks that stand out. The three outstanding steel sector stocks are OneSteel (OST), Bluescope Steel (BSL) and Sims Group (SGM). The analyst remains bullish on the outlook for the steel sector, and have "Outperform" recommendations on two of three aforementioned stocks.

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.

An update about Australian steel stocks by analyst Citigroup Investment Research (CIR): The analyst's medium-term steel view falters; in contrast to expectations based on their macro driven view of the steel industry, Asian steel prices are up 5%-30% since the start of 2007. The analyst now focuses on near-term indicators of steel prices and increase their earnings forecasts for the volatile steel stocks in their coverage universe by up to 27% and upgrade their recommendation on BlueScope (BSL) to Hold.

Merrill Lynch have rated the Sims Group (SGM) stock as a Buy, Medium Risk. The broker still believes in the value of the company and retains the Buy recommendation, however, short term share price drivers have disappeared for the moment.