Waiting for the perfect storm. • For Elders to generate underlying earnings growth of +12.8% in a market in which competitor Landmark is looking for a 25-30% fall in its earnings is an indication of the strength of the franchise and managements vision to move the business towards financial services (now 43% of earnings). • Over the last three years we have seen compound earnings growth in Elders of 19% pa and that is in the face of two consecutive poor seasons. Under normal conditions Citigroup Investment Research (CIR) estimate that this business is capable of delivering a result $10-15m higher than it has in FY06. • While MIS contributions are unlikely to grow in FY07e, an improvement in the sawmill operations through cost initiatives ($3.0m pa), no reoccurrence of redundancies ($0.8m) and a move to improve quality to stem customer losses look to set this business up for growth. • With underlying EBIT lower than expected in most divisions, CIR have pulled back their NPAT forecasts by 2.1% in FY07e and 4.1% in FY08e. Their target price has come back to $2.34ps (prev. $2.46ps) principally on higher net debt and lower cash contributions from associates. • FCL appears to be victim of a swing in sentiment towards forestry and agricultural stocks yet continues to demonstrate earnings growth. CIR continue to see solid earnings growth with compound EPS growth forecast at 13% through to FY09e at the very affordable FY07e P/E of 9.4x (pre-investments/property) and have retained their Buy/ Medium Risk (1M) rating.
FCL Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)