Australia | Nov 29 2006
By Chris Shaw
Multiplex Group (MXG) continues to put the horrors of the Wembley Stadium contract disaster further behind it with the purchase of a portfolio of property assets in Germany, but the market reaction has been a case of much ado about nothing.
The company has bought a portfolio of retail assets for $595m on a yield expected to be just over 6%, JP Morgan noting the disappointing aspect is the lack of any redevelopment options.
While SB Citigroup is positive on the purchase in that it helps the company ramp up the funds under management side of its business and JP Morgan points out it leaves the company less exposed to generating earnings from construction and development fees, there is little impact on earnings from the transaction.
Deutsche Bank has lifted its earnings per share forecasts in FY08 by 1.1% to 24c, up from an expected 19c in FY07, while Citigroup suggests there will be an earnings impact of less than 1% from the move. The broker is forecasting earnings per share of 23c in FY07 and 29c in FY08, virtually in line with the median estimates according to Thomson One Analytics of 24c and 29c respectively.
At the same time, Deutsche points out the move potentially exposes the company to earnings risk from adverse currency and interest rate movements, while JP Morgan sees the deal as little more than an arbitrage between the cost of debt and the yield available on the portfolio.
None of the brokers have found fit to change their ratings, Deutsche retaining its Sell recommendation and JP Morgan and Citigroup both sticking with their Neutral/Hold ratings. Overall, the FNArena database shows the stock is rated as Neutral six times against one Outperform rating and two Sell/Avoid recommendations. As noted earlier this week, Deutsche is advising clients switch out of Multiplex into Lend Lease given its better growth prospects.
The average price target for the stock is $3.67, while Thomson One Analytics shows a median target price of $3.69. Multiplex shares today are slightly lower, as at 11.00am the stock was down 4c at $3.87.