Analysts at Jarden are urging metals recycling heavyweight Sims to embark on a strategic review of its assets to determine if it could capitalise on surplus land sales.
It comes after some of the company’s investors have been eager for the group to sell off more assets after divesting its UK Metals business to Unimetals in recent months for STG222m.
“Strategically, we believe Sims is a better quality, more streamlined business post its UK sale and cost-out programme,” said Jarden in a research note.
“Selling arguably its lowest quality, loss-making business materially above Net Tangible Assets, lifts and shores up valuation support.”
Jarden said that Sims now needed to focus its North American Metals (NAM) business around a profitable volume versus purely volume model to improve sustained earnings per tonne and deliver above cost of capital returns.
“We are encouraged by the early performance,” said the analysts.
“Thereafter, we believe Sims should undertake a strategic review of its asset base.”
Jarden said this should lead to significant opportunity to crystallise surplus land assets, which are not quantifiable based on current disclosures, and or participate in asset swaps.
This can lead to consolidated regional markets, where it can access less competitive, greater at-source volumes.
“Sims would be better placed, possessing higher share in fewer, but better structured, markets, such as Chicago, New York and Baltimore.
Financially, reviewing its shared services functions could further improve its cost base.
“In our opinion, getting financially fitter could enhance its prospects of participating in future US consolidation medium term.”
It comes after DataRoom reported in August that Sims, which counts Allan Gray as a major investor, was shaping as a break-up prospect, with various shareholders believed to be keen for a sale of its North American unit.
Sims Adams, the joint venture operator with Sims in the US, could buy the North American business, which may place a value on the operation of about $1bn and would still provide Sims with exposure.
Sims Adams is considered to be a strong operator and could drive earnings upside.
A sale from the US market would largely see Sims concentrating back on the market in Australia and New Zealand.
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