Divided We StandFN Arena News - November 28 2006By Rudi...

Divided We Stand
FN Arena News - November 28 2006

By Rudi Filapek-Vandyck

Like an accident waiting to happen, small cap specialists at Smith Barney Citigroup believe it is only a matter of time before Coates Hire (COA) will start disappointing on earnings. The question is when, not if, they argued in a recent update on Australian small cap stocks.

The reason behind their pessimism is the building market in the eastern states of Australia. Citigroup talks of "an air pocket" resulting in emerging price discounting to stave off fierce competition and safeguard sales. Citigroup recommends switching into Emeco (EHL) instead because of a less mature growth phase compared with Coates.

The broker has made no changes to its short list of preferred small cap plays in the Australian share market. Key Buys remain Commander Commnications (CDR), Energy Developments (ENE), the aforementioned Emeco, Repco (RCL), Transfield (TSE) and Wattyl (WYL).

Interestingly, Coates Hire still has a position on Macquarie's updated list of top stock recommendations this week, better known on the street as the Pick of the Crop. Both lists have no further overlap.