further to my last post. i just read the morningstar update (7 Feb 2013) featuring their maintained 60c price target - i now think i was wrong when i said analysts seem to be able to read balance sheets.
I was a little startled by some of the asset numbers stated in the morningstar update, so much so i went back to the 2012 AR to check accuracy. Check Item 12 & Item 14 in the notes to accounts in particular to get a better feel for asset allocation between divisions and goodwill allocation between divisions.
Morningstar's update split the assets into iron ore assets and all other assets. they then said all profit generated by iron ore and therefore the balance of assets (all 7.9B worth) earned nothing. this was then used to infer that that goodwill was substantially overstated. this approach and analysis is extremely misleading.
the capital tied up in the manufacturing & distribution business is clearly not returning a profit, so Return on Capital (RoC) is atrocious and any associated goodwill would be expected to be impaired.
however morningstar mistakenly loaded in the molycorp assets, inventories, cash, goodwill & all intangibles into their balance of assets number. also pretty sure that they have not given any substantive value to the key strategic assets of the port or the rail (great point btw Full Tilt).
my read on it is that the $474m write down is coming off the manufacturing (probably most of the writedown) and the distribution goodwill. The balance of the goodwill as per Note 14 to accounts seems to relate to the Molycop purchase and the iron ore purchases - where purchase price > book value of assets. i think that these amounts are pretty safe from further writedowns.
will also be sending morningstar a short email asking for confirmation that they stand by their update. that all said this mob are also the a-clowns that kept putting air in QBE's tires when it was $20 and down trending. numpties.
ARI Price at posting:
$1.07 Sentiment: Buy Disclosure: Held
