Australia | Oct 31 2007
By Chris Shaw
It hasn’t taken long for the market to react to what was a disappointing production report from copper miner Aditya Birla Minerals (ABY) as the shares have continued to be marked down this morning in line with cuts to earnings estimates.
The company yesterday reported a profit of $54 million and this was around $10 million lower than both UBS and GSJB Were had expected but less than half the $130 million forecast of Citi, with higher costs the major culprit.
For both UBS and GSJB Were the production side of the result was in line with expectations, UBS noting of most significance was the fact the key Nifty Sulphide asset continues to generate improved performance. Citi disagrees though and this helps explain why its forecasts were significantly above others in the market. On its numbers production for the quarter was 20% lower than expected thanks to lower grades at both Nifty and Mt Gordon, while total tonnage treated also fell short of the broker’s numbers. The broker also suggests the profit result means sales for the period were lower than production, which wasn’t a good combination with increased production costs.
Further complicating matters in the broker’s view is the fact management currently is providing little guidance in terms of either costs or production expectations, making forecasting of earnings very difficult. Despite this the broker has taken a stab at future estimates and cut its full year forecast for profit for FY08 to $143 million from $286 million previously and for FY09 to $194 million from $327 million, which equates to EPS (earnings per share) of 46c and 62c respectively. This puts Citi’s forecasts more in line with those of GSJB Were for the current year, Were’s revised forecast of 47.8c comparing to its pre-result estimate of 50.2c. UBS remains more bullish and expects EPS this year of 53c, down from 63c previously.
Forecasts for FY09 are more interesting as GSJB Were now stands at 86.2c, down from 88.7c previously, while UBS is at 55c compared to 59c previously. With pre-result median EPS estimates according to Thomson One analytics of 69c and 74c respectively for FY08 and FY09 it highlights just how difficult the market is finding it to get an accurate picture on the company’s earnings outlook.
Following its revisions Citi has downgraded its rating to Hold from Buy, a move matched by UBS in response to its cuts to earnings forecasts. UBS also points out the company’s lack of a dividend for the half will disappoint some in the market, though it notes with the debt position having improved a second half payout of as much as 17c per share is likely.
GSJB Were remains positive on the stock following the report, suggesting it remains cheap on all valuation measures relative to both its peers and the broader market.
The FNArena database shows Weres as the lone positive voice on the stock now as post the downgrades it stands at three Neutral or Hold ratings and one Buy. The average share price target according to the database has come down to $4.11 from $4.80 prior to the result, while the pre-result median price target according to Thomson One was $4.61. Shares in Aditya Birla this morning are weaker and at 11.40am were down 22c or 5.8% to $3.56.