Australia | Dec 04 2006
By Chris Shaw
As the drought continues to bite around Australia the earnings outlook for those companies with exposure to its impact are coming increasingly under threat, as evidenced by the decision of Austock Securities to downgrade Maxitrans Industries (MXI) to Hold from Buy.
In the broker’s view the hoped for improvement in earnings from the company’s tippers, trailers and vans division is now unlikely to come through this year, as it estimates as many as 20% of the company’s customers are being impacted by the adverse weather conditions.
As a result, it has cut its profit forecast for the year to $11.1m from $11.9m, which represents earnings per share of 6.2c as against the 6.7c the company generated last year. Some improvement is considered likely in FY08, the broker forecasting earnings of 7.1c, increasing in FY09 to 7.5c.
At current levels the stock seems reasonable value given it is on a forecast yield of 7.6% this year and 8% in FY08, the broker suggesting the stock is cheap but is likely to struggle for sentiment reasons given the prevailing conditions.
Some improvement in sentiment could come from the move by management to initiate an operating improvement program, the broker noting there is also potential upside from a rationalisation of the company’s facilities given it has a large plant in Queensland and three smaller operations in Victoria.
Maxitrans at current levels is capitalised at around $100m, so it doesn’t receive a lot of broker coverage. The FNArena database shows the most recent rating was Hold by Aspect Huntley, with no other recent coverage on the stock.
The stock today is down 1c at 56c in the first hour of trading, which compares to a range for the year of 44.5c to 95c and the broker’s target price of 62c, down from 70c.