Why the Sims (ASX:SGM) share price is on watch today

The Sims Ltd (ASX: SGM) share price will be on watch this morning after the company released trading update and forecast earnings.

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The Sims Ltd (ASX: SGM) share price will be on watch this morning after the company released a trading and forecast earnings update. At last week's market wrap, the metal recycling company's shares finished at $15.20.

Let's take a closer look and see how Sims has been performing.

What could impact the Sims share price?

The Sims share price could be on the move today as investors digest the company's latest results.

According to this morning's release, the company's business units are performing strongly, with some key improvements driving the lift. Highlights include:

  • Intake volumes for Q3 FY21 have increased to roughly 95% of FY19's average monthly volumes, compared to 85% in 1H FY21;
  • Progress in gross margin per tonne has been made due to higher scrap prices and margin management;
  • Annualised fixed cost savings in excess of $70 million in FY21 compared to FY19 have been achieved; and
  • There was a significant contribution from SA Recycling led by high scrap prices, particularly for zorba linked products, intake volumes, and margin management.

Forecast earnings

In further news that could bump up Sims shares, the company provided a forecast earnings outlook. Sims is expecting to achieve underlying earnings before interest and tax (EBIT) of around $260 million to $310 million.

The company noted several factors that could weigh down the overall FY21 result, however. These include possible disruptions to operations caused by COVID-19, volatility in metal and non-metal prices, and supply chain issues. Furthermore, any macroeconomic and geological risks could also affect the end result.

Management commentary

Sims CEO and managing director Alistair Field hailed the company's progress, saying:

It is pleasing to see the strong improvement in profitability driven by improved volumes, margin management, and achievement of targeted cost savings.

While the short-term outlook still has risks that could result in earnings volatility, in the medium-term Sims is well positioned to benefit from global infrastructure spending, the need for countries and companies to reduce their carbon footprint from steel production to meet CO2 commitments, and the potential for China to import meaningful volumes of recycled ferrous products.

Sims share price snapshot

Over the past 12 months, the Sims share price has accelerated by over 120%, with year-to-date gains above 10%. The company's shares are within a whisker of breaking their 52-week high of $15.56 reached earlier this month.

On valuation grounds, Sims commands a market capitalisation of about $3 billion, with just over 201 million shares outstanding.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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