ferret's stock to watch: csr limited

Ferret's Stock to Watch: CSR LIMITED
07:46, Thursday, 25 November 2004

A COMPANY MOVING TO REGAIN BLUE CHIP STATUS AFTER TROUBLED PAST



Sydney - Thursday - November 25: (RWE)
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OVERVIEW
*********

The CSR share price has never looked to be a winner but if you
dig a bit deeper shareholders have done extraordinarily well when you
include last year's demerger giving Rinker its independence.

CSR shareholders received one Rinker for every CSR held.

Rinker came on the ASX on March 31, 2003 and was first traded at
$4.93.

Yesterday Rinker shares shot up 28c to a record $9.69.

Adding them both together shareholders are in the pink,
especially if you remember at the time of the split CSR itself was $1.60
and yesterday the shares changed hands at $2.64.

The moral of this story is that CSR has looked after its
shareholders through good times and bad and during some very unhappy
times with sugar prices and board changes.

The half yearly profit ended September 30 appears to justify
faith in the company which reported a 29 per cent rise to $129 million
before abnormals.

Interim dividend, (fully franked) rose to 6 cents a share from 5
cents (70pc franked) compared with the same period in the previous year.

Directors anticipate an EBIT profit for the full year to be 20
per cent better than the previous year, ironically on the higher sugar
price.

Shaw Stockbroking has this to say about CSR: "The company
continues to demonstrate its ability to generate strong cash flow from
its diverse operations, and even with a slowing housing market the
company has a favorable outlook.

While the quality of the outlook is a function of the volatile
sugar industry, the recovery in sugar has timed in nicely to offset
cyclical weakness in other segments.

A well managed, operationally efficient company is generating a
strong cash flow that is applied to either value enhancing investments or
returned to shareholders.

Another aspect to add to CSR's prospects is the significant
benefit from the ongoing share buybacks.

CSR is also trading at a 17 per cent discount to the broader
market and the broker is maintaining its Accumulate Recommendation.

Cash flow improved from $137M to $167M, and the balance sheet
remains undergeared (net debt/equity 12pc)

To increase the balance sheet gearing to within the company's
target range of 25-30 per cent (from the current 10pc) implies a capital
management strategy to the value of $140M equivalent to 15 cents per
share.

Significant items showed up $41 million from settlement of legal
claim against insurance companies offset by $36.3M legal costs not
claimable; $25.4M on settlement of a dispute with regards sale of CSR's
Gove JV interests (includingwriteback of provision no longer required);
and $47.8M one off tax consolidation benefit.


SHARE PRICE MOVEMENTS
********************

Shares of CSR yesterday sold 1c lower at $2.65. Rolling year high
has been $2.80 and low $1.73. The former blue chipper looks good on a
4.53 per cent yield on a 12c dividend distribution. By way of interest
Rinker yesterday posted a record high of $9.69 after gaining another 28c
in the market.

The CSR review produced by Shaw Stockbroking pointed out the the
outlook for several operations was uncertain but it would not impact on
the profit forecast.

The CSR share price is expected to be supported by the yield and
strong cash flow - assuming activity in the housing market does not
crash.

The strong cash flow should result in good income returns for
shareholders.

CSR anticipates dividends will be fully franked from year end
March 2005, and will utilise its cash flow to initiate further
capital management strategies.

"With strong underlying cash flow, capital expenditure tracking
50 per cent of depreciation, low gearing, proceeds from property sales
(Hornsby quarry), the benefits of tax consolidation, and expected higher
profits from residential property development, we believe CSR is well
positioned to increase returns to shareholders," the broker declares.

Meanwhile the outlook for housing starts is for a 5 per cent
decline in start volumes in the FY.

This will be partly offset by some strength in the renovations
market.

The company expects to maintain profit levels however, with some
price rises and cost reductions.


BACKGROUND
**********

CSR Limited (CSR) is one of Australia's leading manufacturing
companies with operations throughout Australia as well as in Asia and New
Zealand.

Through its three principal businesses, CSR is a major supplier
of building products and sugar and holds an effective 25 per cent
interest in the Tomago aluminium smelter, Australia's second largest
smelting operation.

CSR is also developing a number of former industrial sites for
future land sales.

Each of the CSR group's businesses has leading or established
positions in its target markets.

Originally founded in 1855 as a sugar company, CSR is one of
Australia's oldest companies, with a proven record of consistent returns
and strong cash flows from its well-established continuing assets.

CSR's revenues are approximately A$2 billion a year and the group
companies employed approximately 4,500 people as of March 2004.

CSR is focused on developing the strengths and performance of its
three businesses to build value for our shareholders by:

* improving the performance of the group's operations, mainly by
reducing costs and enhancing productivity

* pursuing value-adding, low risk growth opportunities allied to
existing businesses

* identifying sensible industry restructuring and rationalisation
opportunities.

In addition, CSR's operations generate stable earnings and strong
cash flows which support a significant and highly franked dividend policy
for shareholders.

In March 2003, CSR completed the final step in a five year plan
to improve shareholder value through the demerger of its heavy building
materials assets then generating around 70 per cent of group earnings -
in the US, Australia, and Asia, into a new company, Rinker Group Limited
(Rinker), listed on the Australian Stock Exchange.

CSR shareholders at that time received one share in Rinker for
each CSR share they held.

The five year plan began in 1998 and focused primarily on
expansion of the group's operations in heavy building materials
(aggregates, cement, concrete and concrete pipe & products), particularly
in the US whilst concurrently divesting under-performing or non-core
assets.

As part of this five year plan, CSR sold 22 businesses for A$1.5
billion in proceeds and made 25 acquisitions for a total of A$2.8
billion.

ENDS

Copyright © 2004 RWE Australian Business News. All rights reserved.

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I don't hold CSR