macquarie is tipping 14.15

Macquaire have just released a note which echoes some of the claims I've been making over the last two weeks:

Macquarie: AFG - Poised to Recover?
10/12/2007

After a period of volatile and often erratic markets which saw Allco Finance Group (AFG) drop 50%, analysts are finally predicting a turnaround. Macquarie Research Equities (MRE) rate the stock an outperform, with a 12-month share price target of $14.15.

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One factor that has weighed on investor sentiment is the acquisition of Rubicon Holdings. Last week AFG announced that the vendors of Rubicon Holdings have cut the upfront purchase consideration by around 12% and increased the deferred “at risk� consideration. This new arrangement still prices 100% of Rubicon at $412m assuming a pre-deal Allco share price of $8.91, or $360m at the current Allco share price of $7.50.

Of concern to shareholders has been that the proposed purchase of Rubicon is a related party transaction. This transaction will require shareholder approval with the meeting to be held on 12 December. Since the deal has been announced, the Allco management team have had little success in marketing the proposal with the Allco share price underperforming by more than 10%.

If the Rubicon transaction succeeds, it will still be a small part of the Allco group with around $20m of FY08 NPAT estimated compared to Allco at closer to $274m on a FY08 basis. MRE’s 12 month price target assumes that Allco can trade on 14x FY09e EPS. Although this may appear optimistic there is a belief the stock can hit $14.15 within the next twelve months.

In MRE’s view, Allco remains fundamentally cheap, but it will be difficult for the share price to return to previous levels while this transaction remains an issue.