From Citigroup Company Sep 12 2005 CSR Ltd Other CSR reports...

From Citigroup


Company Sep 12 2005
CSR Ltd Other CSR reports
Code Market Cap $M Current Recommendation Current Price
CSR 2,685.60 1M (Buy, Medium Risk) 2.95


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Earnings Upgrade
Upgrading earnings on stronger construction forecasts
† A review of our underlying drivers of construction activity have presented a picture of ongoing strength in non-residential and engineering markets, with a continued strengthening in housing. Prompting upgrades to our construction forecasts in FY06e-FY08e, which are summarised below (June year end):
1. A lift in housing starts of 1.5% in FY06e and 3.6% in FY07e.

2. A lift in engineering activity of 8.9% in FY06e and 3.8% in FY07e.

3. A lift in non-residential activity of 8.3% in FY06e and 13.9% in FY07e.

† While CSR's earnings are largely focused in residential construction markets there is an emerging exposure to non-residential markets through products such as plasterboard, insulation and Paroc.

† As a result of our more bullish outlook for construction activity we have upgraded our NPAT forecasts by 3.5% in FY06e, 8.0% in FY07e and 6.6% in FY08e. Our target price has lifted on the back of this to $3.00ps (prev. $2.83ps) but also incorporates a change to our risk free rate assumption from 6.0% to 5.5%.

† We continue to rate CSR Buy, Medium risk on the view that the combination of strength in commodity cycles (Sugar & Aluminium), a cost focus demonstrated in building products and a shallower trough in residential activity look to support the near-term earnings outlook.