RBC Capital Markets Sees Little Value In Iluka

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This story features ILUKA RESOURCES LIMITED.
For more info SHARE ANALYSIS: ILU
The company is included in ASX200, ASX300 and ALL-ORDS

By Chris Shaw

Last week’s quarterly report by mineral sands group Iluka ((ILU)) spurned a number of broker reports and while a number continue to rate the stock as a Buy others remain unconvinced the company has dealt with all the obstacles in its path (see Solid Quarterly But Challenges Remain For Iluka, FNArena 18/1/2008).

RBC Capital Markets agrees, the broker rating the company as Underperform as even allowing for a 28% price fall in recent months it sees little value at current price levels given a relatively lacklustre earnings outlook.

On the broker’s numbers the company should deliver increased earnings per share (EPS) of around 16c in 2008 and 26c in 2009 against 9.3c for 2007, but these numbers have been revised down from previous forecasts of 22c and 43.4c respectively.

This is partly explained by the broker forecasting a fall in zircon prices in 2008 to US$740 per tonne from US$783 last year on the back of higher global supply. It also reflects an increase in capital expenditure, as on the broker’s numbers operating cash flows in 2008 and 2009 combined are forecast to total $569 million against capex of $742 million.

Factoring in its new earnings estimates results in the broker trimming its price target to $4.80 from $5.00, compared to an average price target according to the FNArena database of $5.44. Shares in Iluka today are slightly weaker and as at 12.40pm were down 3c at $4.32.

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