Sims Ltd (ASX: SGM) shares are catching the eye on Tuesday.
In afternoon trade, the ASX 200 materials stock is up 10% to $10.68.
Why is this ASX 200 materials stock jumping?
Investors have been buying the scrap metal company's shares today after responding positively to the release of an announcement following the market close on Monday.
According to the release, the ASX 200 materials stock has entered into a binding agreement to sell the UK Metal business to Unimetals Group. This includes 28 facilities (including three port facilities) and four shredders.
Sims has agreed a deal that will generate total after tax cash proceeds of approximately GBP195 million (~A$385 million). Management notes that this transaction concludes the strategic review that was announced in November 2023.
Completion remains subject to customary conditions, including obtaining regulatory approvals. But if everything goes to plan, the transaction is expected to complete before the end of the first quarter of FY 2025.
Sims notes that the value realised by Sims represents a significant premium to the net carrying value of the asset.
But wait there's more
The ASX 200 materials stock also announced that it has signed a letter of intent to sell its remaining interest in CLP Circular Services for approximately US$32 million (~A$50 million).
Sims Municipal Recycling of New York (a predecessor to Circular Services) was originally valued on Sims' balance sheet at A$70 million.
So, while this final sale tranche will result in the company recognising a loss of A$48 million in FY 2024, that's not the full story. It points out that over a series of three divestments, commencing in January 2022 and concluding with this transaction, Sims has sold its entire interest for approximately A$126 million. This is an overall gain of A$56 million.
As before, completion is subject to customary due diligence, which is expected to conclude during the first quarter of FY 2025.
Management commentary
The ASX 200 materials stock's CEO and managing director, Stephen Mikkelsen, said:
We conducted a comprehensive strategic review of UKM, evaluating all options, including a sale, forming a joint venture, or restructuring the business. The Board concluded that a sale provided the optimal outcome for Sims and its shareholders. By focusing on high-potential markets such as the United States, Australia, and New Zealand, where our business position and demand for scrap are stronger, we can effectively leverage our strengths and drive sustainable growth.
We believe that divesting UKM and Circular Services unlocks significant value for shareholders, which is not reflected in the current share price. Between the two sales announced today we will realise after tax cash proceeds of approximately A$435 million, which will be received in the first half of FY25.
Mikkelsen then revealed what the company plans to do with the proceeds. He said:
The proceeds will initially be used to strengthen our balance sheet and, over the medium term, we will look to balance the requirement of balance sheet strength and flexibility, with growing the refocussed business, and returns to shareholders.
