Australia | Jul 31 2007
By Chris Shaw
In what has become something of a tradition for the company Spotless Group (SPT) last Friday advised earnings would fall short of previous guidance thanks to a combination of adverse weather conditions, the strong Australian dollar and industrial relations disputes in its New Zealand operations.
According to Credit Suisse the update reinforces its view management and directors at the company simply cannot forecast earnings with any accuracy, which means the broker has little confidence in its own earnings estimates.
For the record it has revised its earnings per share (EPS) forecasts to 21.4c this year, 29c in FY08 and 33.1c in FY09, as it sees the more difficult conditions as continuing in coming years.
ABN Amro shares this view and suggests there is no need to hold the shares at the current time given the likelihood the operational issues and adverse macroeconomic conditions the company faces will continue, so not surprisingly it rates the stock as a Sell.
The broker’s earnings have been revised down by 12% this year to 24.1c, by 8% in FY08 to 26.6c and by 6% in FY09 to 27.9c, while UBS is forecasting 25c, 29c and 32c respectively having lowered its estimates 10-11% for the period.
UBS is a little more positive and rates the stock as Neutral, noting while management has identified some cost savings these will be largely offset by the tough operating environment. The outlook, plus a lack of value given its forecasts suggest the company is priced at around 15x earnings in FY08 generates the broker’s rating.
Overall the FNArena database shows Spotless retaining its place as one of the lower rated stocks in the market, with four Hold ratings and three Sell recommendations. The average price target is $4.42, while Thomson One Analytics shows a median price target of $4.57.
Spotless shares are little changed in today’s trading and at 11.10am the stock was down 2c at $4.30.