Sims Limited
Thesis
Sims Limited has undergone a genuine business transformation, with its SLS division turning a traditional commodity recycler into something more interesting. The core metals business remains low-margin and deeply cyclical, earning 2-3% EBIT margins on roughly A$7 billion in metal sales. SLS now contributes approximately half of group operating profit from just 10% of revenue, a concentration that cuts both ways. The competitive position is real but narrow: hyperscaler switching costs, permit-based barriers in metals, and a financially distressed nearest ITAD competitor provide breathing room, though durability extends only 4-5 years on our assessment. ROIC of 6.2% sits below the cost of capital, meaning the business currently destroys economic value in aggregate. The balance sheet is adequate absent the SAR put option, which remains an indefinite contingent liability of A$1.3 billion. Management has executed well on portfolio simplification and SLS scaling, though transparency on the DDR4 installed base shrinkage rate is conspicuously absent.
The Business
Sims is the world's second-largest metals recycler, operating more than 275 facilities across North America, Australia, and New Zealand. The core business buys scrap metal, processes it, and sells it to steelmakers and smelters. What has changed is SLS (Sims Lifecycle Services), a division that decommissions old IT equipment from hyperscaler data centres and resells the components, particularly DDR4 memory modules. SLS now contributes roughly half of group operating profit despite representing just 10% of revenue. The company also holds a 50% stake in SA Recycling (SAR), a US metals joint venture that adds A$129 million in annual equity profit.
Recent Performance
The stock has re-rated sharply over the past twelve months as SLS earnings surged. Underlying EBIT tripled from A$59 million in FY24 to A$175 million in FY25, driven almost entirely by DDR4 memory pricing. First-half FY26 continued the trend, with SLS delivering A$49 million in EBIT at a 15% margin and management guiding full-year SLS EBIT to A$165-185 million. DDR4 spot prices rose 462% year-on-year as semiconductor manufacturers permanently reallocated production capacity to DDR5 and high-bandwidth memory for AI chips.
Outlook
We forecast group revenue growing at 3.2% annually through FY28, with SLS expanding from A$800 million to A$950 million as hyperscaler decommissioning volumes increase. The critical question is margin durability. SLS currently earns a 22% EBIT margin, unprecedented in IT asset disposition where industry norms sit at 6-8%. Our base case models mean reversion toward 10% by FY30 as DDR5 adoption scales past 60% of hyperscaler fleets and the DDR4 installed base shrinks. Group EBITDA rises from A$430 million to A$626 million by FY28, but most of that gain has already occurred.
Key Risks
DDR4 cyclical reversion is the dominant risk: if spot prices fall below US$40 per unit, SLS margins could halve, stripping A$80-120 million from annual EBIT. The SAR put option is a tail risk with catastrophic potential: if the Adams family exercises their right to sell their 50% stake, SGM faces a A$1.3 billion obligation that would overwhelm existing liquidity and likely require equity issuance at distressed prices. Ferrous metal prices remain under pressure from record Chinese steel exports, compressing trading margins across both regions.
What to Watch
- August 2026 FY26 full-year results (SLS H2 validation) — SLS second-half EBIT above A$116 million supports the structural thesis; below A$100 million signals mean-reversion has begun.
- Monthly (ongoing) DDR4 spot pricing trajectory — each 3 percentage point move in SLS margins shifts approximately A$55 million in annual EBIT, making this the single most important variable to track.
- 12-18 months Ferrous market recovery — Turkey HMS scrap prices returning above US$400 per tonne would materially improve metals division profitability across both regions.
Business
Company Description
Sims operates through four divisions. North America Metals (NAM) is the largest, generating A$4.5 billion in revenue from scrap metal collection, processing, and trading across the eastern United States. Australia and New Zealand Metals (ANZ) runs a similar operation at A$1.6 billion in revenue, holding the number-one position in both countries. Sims Lifecycle Services (SLS) manages IT asset disposition for hyperscaler data centres, generating A$800 million in estimated FY26 revenue from decommissioning, component resale, and data destruction. The company also holds a 50% equity interest in SA Recycling, a US west coast metals recycler contributing A$129 million in annual equity profit without flowing through consolidated revenue. A smaller Global Trading and Optimisation segment (GTO) handles commodity trading and logistics.
Where the Growth Is
SLS is the growth engine, contributing an estimated 51% of group EBIT in FY26 (A$176 million of A$346 million) despite being less than a decade old in its current form. Revenue is growing 87% in FY26, driven by DDR4 memory resale at extraordinary premiums. The division benefits from hyperscaler capital expenditure of US$650-700 billion annually, which creates a decommissioning cycle 3-5 years later as servers are refreshed. The incremental EBIT gain versus FY25 is A$143 million, but A$80-120 million of that is at risk if DDR4 pricing reverts to historical norms.
Competitive Position
The metals business has durable but narrow advantages. Sims operates 275-plus US collection and processing facilities, each requiring environmental permits that take years to obtain. These create a meaningful barrier to entry, though they do not confer pricing power in a commodity market. In ANZ, the company holds the top market position with similar permit-based barriers. SLS has built a more differentiated position through hyperscaler relationships requiring five-year security certifications, specialised data destruction capabilities, and direct access to decommissioned hardware. These create genuine switching costs: changing ITAD (IT asset disposition) providers requires re-certification and creates chain-of-custody risk that hyperscalers are reluctant to accept. We estimate these advantages are widening but remain narrow, with a durability of 4-5 years before competitive dynamics may erode them. The closest ITAD competitor, Radius Recycling, is financially distressed, which reduces near-term competitive pressure but could attract a well-capitalised buyer.
Management & Capital Discipline
CEO Alistair Mikkelsen has delivered on the turnaround agenda since appointment: portfolio simplification through the UK metals exit, closure of the loss-making SRR operation, and aggressive scaling of SLS. The blemish is the A$96 million Unimetals receivable writedown, a capital allocation failure that management attributes to legacy decisions but that occurred on its watch. Incentive structures have been realigned to weight ROIC (return on invested capital), TSR (total shareholder return), and productivity equally, which is a positive shift. One honest observation: management is transparent about ferrous headwinds but conspicuously avoids quantifying the DDR4 installed base shrinkage rate or DDR5 adoption curve, both of which are the key threats to its core growth narrative.
Financial Position
The balance sheet is adequate. Net debt to EBITDA sits at 0.6 times on FY26 estimates, with A$106 million in cash and A$413 million in undrawn facilities. The company can comfortably service its A$413 million in borrowings and A$312 million in lease liabilities. Interest coverage is comfortable at current EBIT levels. The latent risk is the SAR put option: if exercised, the A$1.3 billion obligation would overwhelm existing liquidity and likely require equity issuance at distressed prices. No put expiry has been disclosed, making this an indefinite contingent liability. Absent the put, the balance sheet supports operations and modest growth investment without strain.
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