Sims Metal: Profits down but shares rally

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SymbolPriceChange
BHP.AX38.20+0.190
BSL.AX6.53+0.0500
HIL.AX1.71-0.0400
KOV.AX6.060.000
RIO.AX62.79+0.050

The world’s largest metals and electronics recycler, Sims Metal Management (SGM.AX), has reported a pretty ordinary set of interim results, however it appears it was all baked in to the share price with the market pushing the stock over 3% higher after the results release. The company informed the market last month that irregularities had been found within the UK division, so the write-down was well flagged to the market. Indeed, since the announcement on the 21 st of January regarding the UK division’s inventory write-downs, the stock price has rallied nearly 24%, far outperforming the 4.6% return from the S&P/ASX 200 Index (^AXJO) (XJO.AX).

CEO and dividend both gone

After nine years in the job, Sims CEO Daniel Dienst has announced his retirement. With the CEOs of both BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) also calling it quits this reporting season, it would seem that there are some very “war weary” CEOs in the resource sector! Dienst also announced that Sims would not be paying an interim dividend. It was a similar story at BlueScope Steel (BSL.AX) which did not pay a dividend this half either. Korvest Ltd (KOV.AX) whose major shareholder Hills Holdings (HIL.AX) just sold its stake in the company, did manage to declare a dividend despite NPAT declining 39%.

Foolish takeaway

Sims is a classic example of why investors need to look past the headline bad news and analyse the underlying value of a company. There was possibly a great opportunity to purchase a global leader in late January after the UK news came to light and to be 24% better off!

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More reading

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