Scrap metal company SGM’s stock fell 33% in the first half of 2024 without any meaningful respite. We believe the business’s cyclical backdrop is approaching a bottom, but the market’s confidence is low after the recent fall in primary non-ferrous prices. We like the business’s change in focus towards increasing domestic ferrous sales and sacrificing volumes for higher margins, as it will reduce reliance on weaker export markets. Gearing is above Management’s target, but there remains significant liquidity reserves to appease a nervous market.
- We have tweaked our view towards SGM from neutral/bearish to simply neutral as it plumbs fresh 2024 lows.
- Importantly, we see no reason to fight the tape at this stage of the cycle as the stock remains firmly in the “naughty corner”.
MM is now neutral SGM
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