Shares in metals recycler Sims (ASX:SGM) jumped more than 10% at one point on Thursday, despite the company revealing a mixed trading update.
Sims informed the ASX that its first quarter saw growth in its large North American business, but challenging conditions in Australia and New Zealand (ANZ).
The company stated that rising Chinese exports into Asia and a slowdown in the domestic market have made it tougher to compete in its own backyard.
However, some investors appeared unfazed, as the company has offloaded the financial burden of its underperforming UK metal recycling business, which had become a significant liability.
In August, Sims sold its loss-making UK recycling business and a stake in another company for around A$435 million.
Sims reported that its metal businesses are expected to deliver overall earnings of $55 million for the first quarter of 2024-25, with North America Metal (NAM) forecasted to achieve an improved EBIT of $29 million and a 22% trading margin.
Positive commentary from Sims regarding its US performance contributed to the rise in its share price on Thursday.
The company stated, “NAM’s performance builds on the improvement seen in the latter part of FY24, where it delivered an EBIT of $12 million in Q4 FY24, following a loss of $15 million in Q3 FY24.”
“NAM’s recent performance is encouraging, driven by the effective execution of its revised strategy to focus on margin, including buying more unprocessed material and targeting the most favorable markets. These disciplined actions have delivered tangible results.”
Additionally, “SA Recycling’s performance in the US remains robust. Sims’ 50% share of SA Recycling’s earnings is expected to deliver EBIT of $24 million for the first quarter of FY25, above its 2H FY24 run rate, with a trading margin of 29%.”
However, Sims acknowledged that “Australia and New Zealand Metal (ANZ) continued to face challenging market conditions, impacted by increased Chinese exports into Asia and a slowdown in the domestic market.”
Despite these challenges, there is some positive news for the region. Sims added, “While the estimated EBIT contribution of $13 million for the first quarter of FY25 is below the 2H FY24 run rate, it marks a solid start to FY25, with an expected trading margin of 27% for the quarter.”
Last month, Sims reported a 2023-24 loss of $57.8 million and cut its dividend, although revenue rose more than 8% to $7.2 billion.
Sims shares were up nearly 11% by midday Thursday, a very different market reaction compared to Brisbane-based testing group ALS. ALS shares were heavily sold off after it warned that earnings for the first half ending September 30 would see only a slight dip due to lower revenues and volumes in its minerals testing segment.