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Fosters .......................

19-Mar-2013
Morning Report\

Today’s Top Picks.

•Iluka Resources ($9.30, mkt cap $3,678M). China concern provides buying opportunity. Trading Buy $12.65/share

•Soon after its profit result, ILU’s share price passed $11.00 as the market focussed on the optimistic commentary by CEO David Robb concerning positive signs such as the recovering US house market, increased customer inquiries, and production cutbacks by major suppliers such as Rio Tinto and Iluka itself.

•However, the renewed efforts by China to crack down on speculative property market investment has resurfaced worries about whether zircon demand will still languish. We believe this has been mostly responsible for the 15% decline in the ILU share price since its recent peak.

•While we acknowledge the China property clamp down a negative for zircon demand, we believe the share price now more than factors this in. Meanwhile one should be cognoscente of the positive environment which remains in place for ILU:

­Production cutbacks by RIO and Iluka will accelerate the destocking cycle in both zircon and titanium. Industry anecdotes suggest ca. 6 months cycle to achieve this.

­The strengthening US housing sector putting upwards pressure on titanium. Recent price increases by Huntsman are a reflection of this.

•We reiterate our $12.65 price target.


http://www.fostock.com.au/announcements/iluka-resources-ilu-asx