Citi notes the stock has pulled back substantially and sector sentiment remains weak amid falling steel/scrap prices and minimal buying interest. Still, the broker suspects a market nadir may be close.
Given recent volatility and the sharp fall in scrap prices in the US, Citi reduces FY19 estimates by -5% and FY20-21 by -1%. A rising capital expenditure outlook reduces free cash flow but the company should be a beneficiary of improving scrap demand from expanded electric furnace capacity in the US.
Given a favourable risk/reward the rating is upgraded to Buy from Neutral. Target is steady at $11.50.
Target price is $11.50.Current Price is $10.13. Difference: $1.37 – (brackets indicate current price is over target). If SGM meets the Citi target it will return approximately 12% (excluding dividends, fees and charges – negative figures indicate an expected loss).