The company expects the first half result to be “materially lower” than the prior corresponding first half. This earnings warning comes soon after the FY19 results where, Credit Suisse points out, management had highlighted macro headwinds stemming from the US/China trade war, low Turkish steel demand and soft automotive demand.
It appears management concerns have rapidly been realised and its ability to successfully navigate the challenges has been hampered by events outside of its control.
Credit Suisse notes volatility in scrap markets produces material variability in earnings between quarters and the fact the company is reluctant to provide guidance ranges compounds the challenge in deriving an earnings outlook.
The broker reduces first half estimates for earnings (EBIT) by -50% and leaves the second half unchanged. Outperform rating and $12.90 target maintained.
Target price is $12.90.Current Price is $10.84. Difference: $2.06 – (brackets indicate current price is over target). If SGM meets the Credit Suisse target it will return approximately 16% (excluding dividends, fees and charges – negative figures indicate an expected loss).