Australia | May 15 2008
By Chris Shaw
Given conditions remain tough in a number of its markets the fact CSR ((CSR)) delivered a result in line with or ahead of some broker estimates was a creditable performance, but the result has not done much in terms of lifting confidence in the outlook for the company.
Earnings for the full year came in at $192.8 million, which was better than Citi’s estimate at $181 million, Macquarie’s at $177 million and a full 13.5% better than Merrill Lynch had expected, driven by a solid outcome from building products and a lower than expected tax rate, both of which helped offset a relatively soft result from the group’s sugar operations.
For Credit Suisse the issue was the group’s result was helped by some above the line adjustments and this means downgrades to consensus earnings forecasts are likely. The broker’s assessment has proven close to the mark given Citi has trimmed its numbers by 4% in FY09 and 5% in FY10, Macquarie has taken 6% and 7% respectively from its numbers and ABN Amro has cut its FY09 number by more than 20% in earnings per share terms.
This puts ABN’s forecast at 21.5c in FY09 while its FY10 number has been cut 5% to 27.2c, which compares to Citi at 19.2c and 23.3c and UBS at 21.6c and 23c respectively. The FNArena database shows consensus earnings per share forecasts of 20.6c and 22.3c, while mean forecasts according to Thomson One Analytics are 20c and 23c.
Despite the cuts to forecasts post the result the issue for the stock is the view earnings risk remains to the downside, with Citi suggesting while sugar earnings may recover somewhat the building products division is likely to suffer given conditions remain weak in both the Australian and New Zealand housing markets.
This leads UBS to suggest there is little to get excited about in the group’s outlook, as the key longer-term remains a restructuring of the company’s portfolio. Macquarie suggests the investment by management in new growth options is setting the company up well for improved performance in the medium-term, but with conditions still tough there will be little evidence of any gains in the medium-term. Deutsche Bank agrees, arguing the stock should not be bought at least until the housing market shows signs of improvement.
As well Macquarie points out the current capital expenditure program is dragging on group cash flow while each division is being put on a more secure footing prior to any restructuring, the problem being this will act as a drag on earnings in FY09 at least.
FNArena’s database shows the stock is now rated as Accumulate once, Hold seven times and Sell once, the stock losing its only Buy rating today as ABN Amro cut its recommendation to Hold post the result. Credit Suisse upgraded to Hold from Sell to reflect an improved valuation following recent share price weakness.
The average price target on the shares is $3.18, down only slightly from $3.26 prior to the result on the back of the lower earnings estimates but supported by broker’s assessment of the group’s break-up valuation. Thomson One’s median price target is $3.40.
Shares in CSR today are slightly higher and as at 1.50pm the stock was up 1c at $3.02, which compares to a trading range over the past year of $2.76 to $3.68.