Sims Ltd (ASX:SGM) is a recycler of ferrous and non-ferrous metals that operates as a purchaser, processor and seller. The Company’s primary operations are in the US, although it also has significant exposure to Europe and Australasia.
We recently researched SGM in The Dynamic Investor following the release of full-year results. The underlying EBIT result was ~6% ahead of consensus estimates. However, weaker-than-expected results in the key North America Metals (NAM) and Australia & NZ (ANZ) segments have weighed on investor sentiment.
With the share price having declined off its recent peak of $16.73 per share, we assess whether SGM is currently value, or a value trap.
Key Fundamental Drivers
Several Growth Drivers for North America Metals Segment
The North America Metals (NAM) division represents ~50% of SGM’s group revenues, with 59 metal facilities and 12 shredders (excluding SA Recycling JV), more than double its UK operations.
The NAM division is considered to offer the most promising scrap demand outlook. This is to an increased focus on decarbonisation and the transition to low-carbon technologies – and the resultant increase in the number of electric arc furnaces (EAFs) that require scrap.
SGM’s pivot towards unprocessed scrap and domestic markets saw its trading margin rise materially (+3.4%). However, the segment result was constrained by higher costs, partially attributable to genuine adverse weather early in the period.
Tariff support is bolstering US ferrous demand, with tariffs protecting domestic steel and aluminium industries, and supporting local demand for ferrous scrap. The premium for domestic sales is expected to extend from FY25 into FY26, continuing to benefit NAM’s margins from US sales.
ANZ Metals Segment Constrained by High Chinese Steel Exports
Softer ANZ trading margin (2H25: 22.5%, vs 25.7% in FY24) was among key disappointments of the FY25 result. The ANZ segment was impacted by suppressed global ferrous prices from elevated China steel exports.
Record-high Chinese steel exports are expected to keep ferrous prices muted in markets outside the US. This dynamic will continue to challenge SGM’s ferrous export sales from the US, as well as ANZ’s domestic and export volumes. While pricing pressure is likely to persist through FY26, further significant declines from FY25 levels appear limited as prices find their floor.
There is minimal prospects for a near-term improvement in trading margin, amidst low Asian steel spreads, surplus Chinese exports in the region and lower import parity pricing (on a rising A$/US$).
Recent monthly trends in Chinese steel exports have shown a tapering growth rate, with a -8.5% month-on-month decrease reported in June 2025. However, these trends appear to be a normal cyclical pattern rather than a fundamental shift in export capacity or strategy.
Solid Outlook for Sims Lifecycle Services (SLS) Segment
SLS provides secure and compliant global IT asset disposition, e-waste recycling and data center decommissioning services for businesses. SLS enables decarbonisation of data center infrastructure and other IT assets, through reuse and recycling.
The segment now accounts for ~25% of operating earnings, which have been generated off a materially lighter asset base.
SLS continues to exceed expectations. Hyperscaler data center expansion, together with stronger local supply chains supported by tariffs, is driving demand and lifting resale prices. This is fueling strong market momentum, and SLS remains well positioned in FY26 to build on a strong FY25 outcome.
How Effective is the Cost Savings Program?
The Company implemented $100m of cost savings, compared to the original target range of $70-$90m. Overall cost growth in FY25 was moderate (+2.1%). Operational functions remained flat as cost savings offset inflationary increases.
SGM has indeed executed on its targeted cost savings, with a further $10-15m targeted in FY26. However, the cost savings achieve to date appear to have largely been offset by inflationary cost pressures.
Fundamental View
SGM is currently trading on a 1-year forward P/E multiple of ~18x, and slightly higher than the average multiple over the last two years. Accordingly, progress is needed on several fronts in order for the shares to re-rate from current levels and for the risk-reward to become more favourable:
i. SGM has rationalised its portfolio, achieved cost savings target ahead of target and identified surplus value within its property portfolio in the last 24 months. However, operating performance has remained underwhelming in its key markets (North America, ANZ).
ii. Greater earnings growth and consistency is needed across its 100%-owned NA and ANZ Metals business,
iii. Result quality in recent times has been low (i.e. frequent one-off significant items),
iv. Further improvement in Return on Invested Capital (ROIC), which is still low, at 4.9% and
v. Visibility on earnings growth beyond FY26 is low.
Charting View
The rally that started in August 2024 resulted in SGM testing the 2023 high and then falling back again. Not only that, but the stock has broken the downtrend line that had been in place these past 12 months. The shares are finding some support near $14 in the short term, but risk for now still remains to the downside. We would be looking at the next line of support to come in near $13.
Michael Gable is managing director of Fairmont Equities.
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