ERA Back On Track

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED. For more info SHARE ANALYSIS: ERA

By Chris Shaw

Having been forced to declare “force majeure” on its uranium contracts earlier in the year after rain flooded its pits Energy Resources of Australia ((ERA)) is showing signs of getting back to normal following a third quarter production report that largely met the market’s expectations.

Production for the quarter was 1,363 tonnes, which was almost exactly in line with the forecast of Deutsche Bank and only slightly below the amount expected by JP Morgan. It also represented an increase of 24% over the previous corresponding period, providing further evidence operations are improving.

As JP Morgan notes the company should be back at normal levels once the Ranger 3 pit is emptied of water sometime next month, the broker pointing out while sales should equal production there will be a backlog to be worked through as a result of the “force majeure” earlier in the year.

The broker has retained its Overweight rating despite cutting its current year earnings forecast by around 10% to account for a stronger Australian dollar and slightly lower achieved uranium prices as the real growth in earnings is only expected to begin to flow through in 2008.

On the broker’s estimates earnings per share (EPS) this year will come in at around 21.5c before increasing to 94.3c in 2008, these forecasts appearing conservative compared to the Deutsche Bank estimates of 30c and 115c respectively.

It is no surprise then that Deutsche Bank also rates the stock as a Buy, seeing it as a good exposure to the uranium market particularly now the company is again accessing the higher grade material at the bottom of the Ranger 3 pit.

Macquarie saw little of note in the quarterly and continues to rate the stock as Underperform, though this appears to be primarily on valuation grounds as it has indicated it would consider changing its rating if the stock experienced some further share price weakness.

Both GSJB Were and UBS rate the company as a Hold, the latter pointing out one potential cause for concern would be additional rain at the company’s operations. Otherwise neither saw any need to adjust forecasts given the quarterly report was in line with expectations.

The FNArena database shows the company as rated Buy three times, Hold twice and Underweight once with an average price target of $22.03, down from $23.16 prior to the report thanks to Macquarie trimming its target price.

Shares in ERA today are slightly higher and as at 1.15pm were up 10c at 18.97, which compares to a trading range for the past year of $13.29-$28.58.

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