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On Thursday, Goldman Sachs downgraded Sims Metal (OTC:SMSMY) Management Ltd. (SGM:AU) (OTC: SMUPF) stock from Neutral to Sell, adjusting the price target from AUD15.90 to AUD13.90. The revision comes after the firm’s analysis indicated a potential decline in shareholder return and a challenging outlook for the scrap metal industry.
Paul Young, an analyst at Goldman Sachs, cited several factors for the downgrade, including lowered earnings forecasts for 2025 and beyond. The firm’s FY25-27E EBITDA estimates were reduced by 18%, 34%, and 40%, respectively, following a downward revision of Turkey scrap price forecasts. Additionally, Young pointed out a slow start to the year for scrap volumes in the United States and Australia and New Zealand (ANZ) regions, leading to a less optimistic earnings outlook.
The decrease in estimated earnings has also led to a reduction in the net asset value (NAV) by 13% to AUD13.9 per share, down from the previous AUD15.9 per share. Consequently, the 12-month price target has been lowered to AUD12.00 from AUD14.80. This adjustment suggests a projected total shareholder return of -16% for Sims Metal Management, in contrast to the average return of 27% across the firm’s coverage.
Goldman Sachs’ revised forecasts reflect a more conservative stance on the export Turkey scrap price, which the firm previously overestimated. The ongoing high volume of China steel exports and lower-than-expected US scrap volumes, with generation remaining low, were also contributing factors to the downgrade.
The new sell rating and price target for Sims Metal Management Ltd. reflect Goldman Sachs’ recalibrated expectations for the company’s financial performance in light of the current market conditions and industry trends.
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