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Is Sims Metal Management Ltd. an investor’s Holy Grail?

Shares in Sims Metal Management (ASX: SGM) have sagged 10% in the two weeks following its encouraging half-yearly results, which broadcast an earnings before interest, tax, depreciation and amortisation (EBITDA) increase of 252% to $113 million.

Future years also look interesting with increases in consumer confidence and construction activity in Australia and a weakening Australian dollar (which contributed $9 million to that EBITDA figure) set to improve earnings, at least locally. The U.S. market is also showing signs of improvement; however scrap collection remained at low levels during the last six months, partly due to unusually heavy winter weather.

UK and European markets have stabilised, although the outlook is uncertain due to ongoing economic struggles in the region.

What investors should be most interested in however, is the fact that fund manager Perpetual Limited (ASX: PPT) – a favourite of several Motley Fool contributors – has recently increased its company ownership from 6.16% to 7.34%. Fund analyst Morningstar also lists Sims as a buy, with a ‘fair value’ of $13 (recently lowered from $14). At today’s price of ~$9.80, the shares are trading at a 25% discount to fair value.

Foolish takeaway
With the future looking much rosier for Sims and the market apparently slow to recognise it, investors are right now being offered the opportunity to buy an improving business while its share price is still in the doldrums. Perpetual and Morningstar are both on the Sims bandwagon – perhaps you should be too?

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Motley Fool contributor Sean O’Neill doesn’t own shares in any company mentioned.

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