Yesterday, Sims Ltd (ASX: SGM) announced it is moving to consolidate its Houston operations, agreeing to acquire Tri Coastal Trading assets for US$66.5 million and planning to sell its Mayo Shell property.
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What did Sims report?
- Agreement to acquire Tri Coastal Trading (TCT) assets for US$66.5 million
- Expected proceeds from Mayo Shell property sale estimated at over US$100 million
- EBITDA multiple for the acquisition projected at less than 4x post synergies
- Combined Return on Invested Capital (ROIC) for Houston operations expected in excess of 20% post synergies
- Total Houston EBITDA (post-integration and synergies) forecast to exceed US$25 million
What else do investors need to know?
Sims' acquisition includes the novation of TCT's Enstructure LLC service agreement, securing exclusive access to a deep-sea dock and harbourside land in Houston's Galena Park industrial area for the next 18 years, with options for further extension. This move will allow Sims to consolidate its operations, reduce operating and administrative costs, and boost logistics capabilities for sourcing and shipping scrap metal both domestically and overseas.
The planned sale of surplus land, including Mayo Shell, forms part of ongoing portfolio optimisation and is expected to recycle capital into higher-return opportunities. The Mayo Shell transaction remains subject to customary conditions and due diligence, with closure anticipated in the coming months.
What did Sims management say?
CEO and Managing Director Stephen Mikkelsen said:
We have been looking for a solution to our Houston business for some time. It is a big market. Houston is the fourth largest city in the USA and Texas's GDP is US$2.5 trillion, the second largest in the USA. It also operates heavy industries such as oil and energy that have high metal intensity. While we have made significant progress in turning our Houston business around over the last two years, its ultimate potential was always hampered by the lack of a deep-sea dock, which would have only been achievable with significant capital expenditure at our Mayo Shell site.
TCT is an ideal solution to this problem. We free up all our Houston land for sale, avoid significant capital expenditure on the current facilities, significantly reduce our cost per tonne, and meaningfully grow our EBITDA, EBIT and ROIC.
What's next for Sims?
The company will focus on integrating TCT's operations, consolidating Houston activities at the Enstructure facility and realising synergies to improve earnings. Sims also plans to complete the sale of Mayo Shell and market additional Houston land parcels over the next 18 months.
Management reaffirmed ongoing efforts to optimise the asset base and recycle capital into higher-return investments, positioning Sims Limited to deliver sustained value for shareholders.
Sims share price snapshot
Over the past 12 months, Sims shares have risen 50%, outperforming the S&P/ASX 200 Index (ASX: XJO) which has risen 5% over the same period.
