analyst reports

Solid half year results, as expected.

But it is not the results which are determining PHY's share price at present. It is the strategic review.

Over the next few days there will be a series of influential analyst reports coming out on PHY. My guess is that most analysts will place a HOLD recommendation on PHY at present levels.

The hold recommendation will likely be motivated by two factors:

First, I think many analysts expect the sale process to take some time. With the increasing likelihood of extended negotiations between multiple parties, a final sale may not be acheived until May.

Second, I'm expecting most analysts to (conservatively) predict a final sale price of between $4.50-5.00. And on this basis, I would expect most analysts to put forward a risk/reward equation like the following:

'While we feel that there is an 80% chance of PHY changing hands now that indicative bids have been received, a final sale may present relatively little upside from present levels ($4.55 = potential upside of between 0 and 45c). And if the sale process does not succeed, PHY will likely fall to around $3.55. So, from present levels we feel that there is a maximum potential upside of 45c versus $1.00 downside. On this basis, and factoring in an 80% chance of the sale being completed in the next few months, the potential reward from buying at present levels is effectively neutralised by the risk. The stock is evenly balanced. etc etc., HOLD.'

Australian analysts have traditionally undervalued PHY, and I expect this trend to continue.

For the record, I maintain the veiw I presented in earlier posts, viz., that if PHY sells over the next few months, it should sell for around $5.30 per share ($800mill). Even if none of the present bidders are presently offering this price, PHY management know that PHY is basically now a permanent takeover target, and they would have a high degree of confidence that it is only a matter of time before an $800mill+ bid comes along.