Australia | Jul 12 2007
By Chris Shaw
As analysts adjust their commodity forecasts higher as has been the case for the past few weeks the process of lifting target prices for various resource stocks is also underway, with copper player Aditya Birla Minerals (ABY) a significant beneficiary.
Both UBS and Credit Suisse have both their metal price estimates and target for the stock over the past week, the former increasing its expected 2007 average price for copper by 8% to US$3.24 per pound and in 2008 by 9% to US$3.00 per pound.
In terms of earnings for the company next year’s higher metal price is offset by a stronger Australian dollar and ongoing input cost pressures, the result being a 2% cut to the broker’s earnings forecast for FY08. The following year some gains should be achieved and the broker has lifted its FY09 forecast by 3%, so the company’s earnings per share outlook now stands at 1c this year, 64c in FY08 and 58c in FY09.
Earlier this week Credit Suisse also adjusted its estimates and the result was more significant for group earnings, the broker’s forecasts increasing in FY08 by 10.9% to 76c and in FY09 by an even more impressive 59.3% to 74.8c. Its estimates compare to the median market forecasts according to Thomson One Analytics of 65c and 58c respectively.
The higher forecasts have flowed through into increases in the respective price targets of the two brokers, UBS’s increasing its 12-month target to $3.85 from $3.30 and Credit Suisse to $3.75 from $3.20. UBS notes at its target price the stock would be trading on a P/E (price to earnings) multiple of 6x in FY08, which would put it at a discount to its peers.
They are not the only brokers that like the Aditya Birla story as GSJB Were and Citi also rate the stock as Buy, making it a perfect four from four in terms of positive ratings from brokers in the FNArena database to cover the stock.
The positive view of GSJB Were is based on the potential for a turnaround in performance, the broker noting there has been a number of issues as the company moves closer to production but the majority of these appear to have been ironed out. Citi’s rating dates back to April but it too saw turnaround potential as the company enters production.
The average price target according to the database is $3.79, while Thomson One notes a median price target of $3.25. Shares in Aditya Birla have jumped this morning and as at 10.40am were trading 27c or 8.8% higher at $3.34, which is a high for the past 12 months.