Citi group research has Sell recommendation....last time they...

Citi group research has Sell recommendation....last time they were spot on with their Sell reco at 1.20 levels...just thought id post their report for information to all...



ConnectEast Group
Rough Ride Ahead
With the first week traffic and ‘theoretical’ revenue data for EastLink falling short
of our expectations, we retain our Sell recommendation on CEU with a target
price of $0.87ps (from $1.17ps). The ride will be rough for the investors in the
near-term, particularly given the traffic risk inherent in a greenfield project.
The opening week ‘un-tolled’ traffic of 275,364 vehicles per day can only be
viewed in the context of experiences elsewhere. Although different corridors,
WestLink’s tolled traffic turned out to be 50% less than the opening week’s untolled
figure. On that basis, EastLink’s tolled traffic in August could be 138,000
vpd - ~26% below Product Disclosure (PDS) predictions. A notional weighted
average toll charge of $2.61 per trip was below our estimate of $3.20. It appears
that commuters are taking shorter trips compared to PDS and our expectations.
Assuming a recovery in traffic post school holidays, we have retained our current
near-term traffic estimates (171,000 versus PDS of 186,000), but extended the
traffic ramp-up. We have also cut our ‘effective’ toll charge for FY09e by 14% to
$2.75 per trip (from $3.20 per trip) and grown it at 5% pa for the next 5 years
(instead of with inflation). As a result, our earnings and valuation have been cut. If
traffic and toll does not rise materially in the near-term, CEU may have to revisit
its promised distributions sooner than later. However, its single asset status starts
to hold corporate appeal at around our target price of $0.87ps.