Australia | Apr 24 2008
By Chris Shaw
Unlike a number of other companies in the sector that suffered from flooding and so reported lower than expected output in recent months Centennial Coal ((CEY)) has avoided such problems, the company delivering a production result slightly better than most in the market had expected.
JP Morgan had forecast mine production of 3.95 million tonnes but the company delivered 4.1 million, the broker attributing the extra to strong performance at the Newstan and Springvale operations. Macquarie agrees and sees scope for further gains from Springvale as the company is moving towards mining there on a 24/7 basis as well as a continuation of the improved performance at Newstan.
To reflect this the broker has lifted its earnings estimates by 16% this year to $51 million and in FY09 by 17% to $159 million, which in earnings per share (EPS) terms implies 16.3c and 50.3c respectively. Others are more bullish on the FY09 outlook, JP Morgan anticipating EPS of 56.7c next year and Deutsche 65c.
Deutsche’s positive outlook is reflected in its Buy rating, the broker seeing potential for the company to lift export sales from 20% of its total at present to 40% over the next four years, which should boost earnings given the current strong outlook for coal prices.
It should also provide a boost as JP Morgan notes domestic sale contracts are CPI indexed and while these are slowly being repriced as old contracts roll off and are replaced there has been little in the way of any earnings boost to date despite the strength in coal prices. UBS agrees, the broker making only minor changes to its earnings estimates on the back of the production report.
For Macquarie and JP Morgan the issue is the good news from the report and the more positive outlook it implies is already priced into the stock, so for both brokers their Neutral ratings remain unchanged. UBS also has the stock as a Hold, while Macquarie likes the potential for increased exports and so rates the stock as a Buy, as does GSJB Were.
Overall the FNArena database shows Centennial scoring two Buys and Six Hold ratings, with an average price target of $4.57, up from $4.52 prior to the result.
Shares in Centennial today are slightly weaker and as at 1.30pm were 6c lower at 4.77, which compares to a trading range over the past 12 months of $2.71 to $5.29.