Australia | Aug 15 2008
By Chris Shaw
Printing group PMP ((PMP)) reported earnings before interest and tax of 85.1 million, a result right in line with previous guidance. The problem is the company had already downgraded it earnings guidance, so simply meeting expectations was not likely to inspire the market.
Judging by broker reactions, the result certainly hasn’t inspired analysts, with the FNArena database now showing a number of downgrades in ratings post the result. Deutsche Bank and Macquarie have cut their ratings to Sell from Hold and UBS and Credit Suisse have lowered to Hold from Buy.
The main issue cited by most analysts covering the stock was the lack of any certainty with respect to the group’s earnings outlook, as management offered no guidance for FY09.
Credit Suisse points out, there is scope for both upside from the integration of the Times printing acquisition and a resolution of a contract dispute with Australian Consolidated Press and downside from any volume impact given the deteriorating consumer economy in Australia. As well, Deutsche Bank notes the company’s New Zealand operations continue to generate weak performance, while cost pressures are also at play.
To reflect the uncertain outlook, brokers have re-examined their earnings models. Citi forecasting an 8% decline in earnings per share (EPS) terms to 13.1c in FY09, while Credit Suisse sees modest growth and is forecasting EPS of 17.8c, down slightly from its pre-result forecast. UBS, however, has left its forecasts essentially unchanged post the result at 15c, close to the FNArena database consensus estimate of 15.1c. The database now shows the stock as rated Accumulate once, Neutral twice and Sell three times.
UBS’s downgrade to a Neutral rating was a valuation move, as the stock has rallied of late. Credit Suisse’s downgrade was a matter of not having confidence in its FY09 forecasts, while Citi retained its Sell given the lack of any catalysts from what will be a tough operating environment in the coming year.
Deutsche Bank’s downgrade to join Citi at Sell follows much the same reasoning, and is supported by its cut in price target to $1.00 from $1.55 previously. Similarly, Credit Suisse has lowered its target to $1.55 from $1.76, while the FNArena database shows an average price target now of $1.20, down from $1.39 pre the result. Thomson One Analytics shows a median price target of $1.28.
Today, shares in PMP are weaker and as at 11.30am the stock was down 5c or 4% at $1.20. This compares to a trading range over the past year of $0.86 to $1.98.