Australia | Jul 12 2006
By Rudi Filapek-Vandyck
It’s bears against bulls when it comes to Rinker (RIN) these days.
The ABN Amro Warrants team put out a note this morning stating the 30% share price pullback from recent highs is too severe, a trading opportunity is therefore the only logical conclusion.
A few facts in favour of the view are that US housing accounts for just under 50% of total business at Rinker and the recent share price fall would imply a pullback in US housing activity of 60%, which admittedly looks a bit excessive.
In addition, on ABN Amro’s calculations the stock looks fair valued around the $19-20 mark. Even when compared to its peers the shares should still be trading around the $17.50 mark. Rinker shares closed at $15.68 yesterday.
A screaming buy?
Credit Suisse, one of the two brokers that downgraded the stock recently due to too high market expectations vis-à-vis the housing construction slowdown in the US, seems to agree with ABN Amro Warrants, stating this morning "we believe fundamental value is emerging across James Hardie (JHX) and Rinker".
However, CS also maintains market expectations are still way too bullish and this will result in expectations coming down over the next two months or so.
The broker throws in its own proprietary US housing survey, which has revealed the most unpleasant surprise of a significant deterioration in key Rinker markets, Florida and Arizona.
The key message likely to emanate from all this is that Rinker appears to be a screaming buy at current share price levels, but it’ll take a while before the uptrend can resume as market expectations will have to find solid ground again.
A first step could be made on July 18 when the company is expected to provide the market with an update of how things have developed over the first quarter of calendar 2006.
No doubt the expert community will start taking note from there on.