Australia | Jul 07 2006
By Terry Hughes
While asbestos related issues have clearly dominated James Hardie’s (JHX) share price over recent months, the analysts at UBS now feel positive newsflow on the growth of the company’s fibre cement business will increasingly impact the stock.
The broker now sees the stock as an "emerging value play" and points out that despite the housing downturn, the company’s long term pricing strategy and high market share are expected to ensure that profits are fairly resilient.
The company is almost in a monopoly position in the US fibre cement market, the broker argues, which should help it weather the US housing storm, while around 20-30% of the company’s earnings come from Texas, which UBS says seems to be going against the general US trend, which housing permits and starts both on the up.
That said, UBS states that while its valuation of $9.50 is 30% up on the current share price, if the asbestos payments were ruled to have no tax benefits, then this would fall to 18%.
The broker has raised its recommendation to Buy, but cautions that the stock could underperform if the US housing downturn became more concerning.
Looking at the FN Arena database it is hardly any wonder that the average target on the stock now stands at $9.99, compare to the current share price of $7.52 as of the 10 brokers and equity advisers covering the stock, only GSJB Were is not convinced, preferring a neutral recommendation, while the other nine all say Buy, making the stock the highest recommended in Australia, along with ConnestEast (CEU).