meet the analyst who crunched a giant, page-2

what scares me about this guy is

"Asciano shares plummeted more than 60 per cent to a record low of 63.5c on Tuesday after Mr Magotra downgraded his target price for Asciano stock and placed a "sell" recommendation on the stock.

In the 18 months Mr Magotra has been covering the company, he has on 20 separate occasions recommended investors buy the stock, with the latest buy recommendation issued on September 8 with a target price of $6.08."

Did he just wake up on Monday and thought "fu*k it, all those buy recommendations where actually wrong" Anyone who bought on his advice should consider sueing. All of the facts that he uses for this weeks recommendations have been around for ages, espically during his buy recommendations.

BUT..... when you look at some of the facts it does make sense.

"Asciano’s predicament is of its own making. When it separated from Toll Holdings last year it took with it most of the group's debt. That was in tune with its view of itself as a listed infrastructure business, most of which were/are heavily geared to leverage their returns.

It is the interest costs associated with its near $5 billion of debt – about half of it maturing in 2010 – that have almost sunk Asciano.

At an operational level it has performed strongly, with earnings before interest, tax, depreciation and amortisation (EBITDA) rising 10.1 per cent to $678 million in the year to June. Poole said tonight that the group was performing in line with budget for the first four months of the financial year, or a six per cent increase in EBITDA over the same period last year.

Even if one puts one-off losses of $239 million ($104 million relating to its ill-fated sortie onto the Brambles register) to one side, the $423 million of earnings before interest and tax generated in 2007-08 provided only minimal coverage for financing costs of $386 million. A modest increase in profit doesn’t do much to alter the basic dilemma of having far too much debt.

Asciano is a capital-hungry business, with capital expenditures of $353 million last year against depreciation and amortisation of $255 million. Asciano has said its maintenance capex was only $124 million, with "growth" capex of $229 million.

-----------the $423 million of earnings before interest and tax generated in 2007-08 provided only minimal coverage for financing costs of $386 million. A modest increase in profit doesn’t do much to alter the basic dilemma of having far too much debt.
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