meet the analyst who crunched a giant, page-26

$2.8 Billion in Revenue and Nothing to Show For It
While the share market was plummeting to earth over the last couple of days, at least one stock was bucking the trend. Asciano [ASX:AIO]. Earlier this week it fell from $1.75 to 50 cents. In the following two sessions it has recovered most of that ground to close at $1.50 yesterday.

On Tuesday, broking firm Citi cuts its price target on Asciano. It previously had a buy recommendation and a target price of $6.08. As of Tuesday this changed to a sell and a target of 82 cents.


The gist of the research from Citi is that Asciano has too much debt . Not only that , but its earnings are likely to be impacted in a slowing economy.

The sucker punch though was the comment in the first paragraph of the report which said "the stock is worthless."

Ouch! No wonder the price fell out of bed.

So, is it all doom and gloom for Asciano? Or does the quick price rebound qualify it as one of our 'Bounceback Belters'? Our first cautionary note is not to forget what happened to Babcock & Brown [ASX:BNB].

If you recall, back in September the B&B share price slumped from $2 to about 70 cents in a matter of days. In the following couple of weeks it clawed its way back to $3. Part of that was thanks to the introduction of the short selling ban. Surely it would be plain sailing now without the evil short sellers around. Now everyone could focus on the fundamentals of B&B, which everyone had told us were sound.

Not that we believed them.

Well, it turns out that the market did focus on the fundamentals. And it turns out those fundamentals were just plain mental. Since then the share price has re-slumped back down to yesterday's closing price of 55 cents.

As we take a look through the Asciano annual report - all 152 pages - we see that for the last financial year it had a financing expense of $401 million. That's thanks to loans exceeding $4.6 billion.

A further look at the balance sheet doesn't paint a pretty picture at all. Total assets of $7.4 billion, which includes goodwill of $4.3 billion. How much will that be worth if the company is put through a fire-sale? Not $4.3 billion is our guess.

The income statement (or profit and loss for us old timers) isn't much to shout about either. The profit before financing costs was only $422 million, so if you take out the financing costs and a bunch of other things the company had nothing to show for $2.8 billion of revenue.

Asciano may have been a bargain at 50 cents for a short term trade. But anyone thinking it is still a bargain at $1.50 shouldn't be surprised if it pays a visit back to 50 cents in the near future.

Cheers.
Kris.

[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]