analyst: 'dead in the water' Dead in the water† The FY05 result...

analyst: 'dead in the water' Dead in the water
† The FY05 result was in line with expectations, but the outlook comments were disappointing, with the company hosing down forecasts for FY06E as the UK operations take a backward step.

† Adsteam has posted a NPAT of $29m (pre-significant items) on revenue of $332m. These matched expectations, but the final dividend was cut from 2.2¢ to 1.9¢ a share (Citigroup 2.4¢). Australian profits were flat, with the benefit of cost savings and one-off project work countering the full year impact of AMS opening in Botany. UK profits were up strongly, albeit to a level slightly lower than expected.

† We have cut our EPS forecasts for FY06E-FY08E by 18.5%, 14.5% and 13.7%, respectively, with the UK business blamed for most of the downgrade. Whereas the mix of cost savings and price increases was forecast to deliver a 12% lift in profits, the UK is now expected to go backwards, mainly due to a recent contract loss.

: The operational and balance sheet restructuring is all but complete, yet there has been limited benefit to the bottom line and growth remains elusive - EPS pre-goodwill and one-off items was 22.0¢ in 2002, 16.6¢ was posted in FY05 and 16.0¢ is now forecast for FY06E. The lack of progress largely reflects the arrival of competition in three ports.

† As a result of the downgrade and poor earnings outlook, we have cut our rating from Hold (2H) to Sell / High Risk (3H) and lowered our target price to $1.61 (previously $2.04).