Austar Quarterly Does Nothing To Change Divided Opinions

Array
(
    [0] => Array
        (
        )

    [1] => Array
        (
        )

)

By Chris Shaw

Austar United Communications (AUN) reported quarterly earnings yesterday and while some saw the result as somewhat disappointing, there remains divided expert opinion about the prospects for the company.

Earnings before interest, tax, depreciation and amortisation rose for the quarter by 1% to $33.5m, though Citigroup notes this was below its forecast of $39.3m even if adjusted for one-off issues.

This has prompted the broker to downgrade its rating on the stock to Sell from Hold, as in its view while the company is meeting its estimates in terms of adding new subscribers, to date it has not been able to turn that into significant gains in average revenue per user (ARPU).

The broker also points out headline profit of $16.3m was higher than its forecast of $14.7m, but this was due simply to lower depreciation and interest charges and doesn’t represent improved operating performance. As a result, the broker has cut its earnings estimates for 2006-2008 by 2-5%.

Also not overly impressed was JP Morgan, who agreed the operating result didn’t meet its forecasts thanks to higher than expected costs. The broker, who rates the stock as Neutral, is also somewhat cautious about the company’s decision to make a capital return of $202m, which equates to 16c per share, as it sees the company as having significant capital requirements in coming years as it rolls out its broadband offering and launches its PDR product.

But it is these new products and the potential for growth that Deutsche Bank sees as one of the attractions of the stock, as it expects they will see the company achieve a lift in ARPU going forward. This becomes more significant if the broker’s estimates for market share growth are achieved, as it expects the company to move from a current market penetration of 23.5% to 26.9% by 2008.

As a result, the broker’s Buy rating is supported by earnings estimates that are higher than most of its competitors. According to the FN Arena database Macquarie has the only Buy rating on the stock, compared to five Neutral recommendations and the Sell rating of Citigroup.

The average share price target is $1.39, which compares to the median price target according to Thomson One Analytics of $1.45.

Austar shares as of 3.20pm today were down 2c to $1.28.

Click to view our Glossary of Financial Terms