Sims Group Limited

They say that every dog has its day, and it seems that for Sims Group that day was some time last year. The company has announced a 37% decline in net profit to $68m, resulting in earnings per share of 67 cents. As we’ve been warning for some time, most recently in issue 184/Sep 05 (Sell—$18.04), the stock was riding for a fall once steel prices finally retreated from record highs. And that’s just what we’re seeing now. While the drop in net profit might seem steep, the news only gets worse for those still owning the stock. The second-half profit is likely to be lower still and we now expect full-year earnings of just $1.20 a share. This might place the stock on a seemingly reasonable PER of 12 for the current year but, if steel prices continue to come off the boil—as we suspect they will—the company could soon find itself trading on a PER of more than 20 based on the current share price. Sims Group remains one of our strongest SELL recommendations.