##{"id":58755,"date":"2011-08-29T15:23:03","date_gmt":"2011-08-29T05:23:03","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/29\/building-products-companies-at-risk\/"},"modified":"2011-08-29T15:23:03","modified_gmt":"2011-08-29T05:23:03","slug":"building-products-companies-at-risk","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/29\/building-products-companies-at-risk\/","title":{"rendered":"Building Products Companies At Risk"},"content":{"rendered":"

\n\t– Alesco<\/span> lower 1H12<\/span> guidance only a month into the year
\n\t– Brokers cut forecasts, ratings downgraded
\n\t– Citi<\/span> sees implications for other companies in similar markets
\n\t– Downgrades both GUD<\/span> Holdings and GWA<\/span> Group as well<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tIt was only a month ago Alesco<\/span> Corporation ((ALS)) reported full year earnings for FY11<\/span> but trading conditions since the profit result have been bad enough to force management to quickly lower earnings guidance for FY12<\/span>.<\/p>\n

\n\tRevenue for the first half of FY12<\/span> is now expected to be 6% lower than for the corresponding period in FY11<\/span>, while management's guidance suggests net profit for the half will be between 26-39% lower than for the same half last year. This implies a profit for the period of $6.2-$7.5 million.<\/p>\n

\n\tJP Morgan notes the main reason for the downgrade to earnings guidance is a significant deterioration in the renovations market in Victoria in particular. This is impacting on earnings in the Functional and Decorative Products division in general and specifically for the Parbury<\/span> kitchen laminates operations. <\/p>\n

\n\tAccording to RBS<\/span> Australia, the update also means the challenge in reclaiming lost market share in the Parbury<\/span> division is proving more difficult than had been expected. While Alesco<\/span> intends to counter the weak conditions with more cost cutting and labour<\/span> reductions, RBS<\/span> expects these won't be nearly enough to prevent the fall in earnings implied by the new guidance.<\/p>\n

\n\tBrokers have been quick to make significant changes to earnings estimates, with RBS<\/span> cutting its earnings per share (EPS) forecasts by 35% through FY13<\/span> and Citi<\/span> and JP Morgan dropping its numbers by similar percentages.<\/p>\n

\n\tConsensus EPS forecasts for Alesco<\/span> now stand at 24.7c<\/span> for FY12<\/span> and 31.6c<\/span> for FY13<\/span>. The impact of revisions to forecasts has been felt in price targets, the consensus target according to the database falling to $2.18 from $3.35 previously.<\/p>\n

\n\tAs conditions in some of Alesco's<\/span> markets have fallen to a level where management can't offset the impact through efficiency improvements, the chances of share price outperformance<\/span> prior to any improvement in market conditions has been greatly reduced according to JP Morgan.<\/p>\n

\n\tAs a result JP Morgan has downgraded to a Neutral rating from Overweight previously, a move matched by both Citi<\/span> and RBS<\/span> Australia. This leaves Alesco<\/span> rated as Buy once and Hold four times by brokers covering the stock in the FNArena<\/span> database.<\/p>\n

\n\tGoldman Sachs is not in the database but has similarly downgraded to a Hold rating from Buy previously, while dropping its target by 46% to $2.01.<\/p>\n

\n\tThe downgrade to earnings guidance by management at Alesco<\/span> has implications elsewhere, as other stocks exposed to the building products and consumer related sectors such as GUD<\/span> Holdings ((GUD<\/span>)) and GWA<\/span> Group ((GWA<\/span>)) are also likely to find the going tough.<\/p>\n

\n\tTo factor this in Citi<\/span> has lowered earnings forecasts and downgraded ratings for both companies to Hold from Buy. Price targets have also been cut, by 22% to $7.68 in the case of GUD<\/span> and by 12% to $2.45 for GWA<\/span>. <\/p>\n

\n\tCiti<\/span> has been the first to push through changes to numbers for GWA<\/span> and GUD<\/span>, but following the Alesco<\/span> update there is scope for other brokers to soon follow suit. Currently GUD<\/span> is rated as Buy four times and Hold twice, while GWA<\/span> Group scores three Buy ratings and three Hold recommendations. <\/p>\n

\n\tShares in Alesco<\/span> today are weaker and as at 1.00pm<\/span> the stock was down 7c<\/span> at $1.715, which compares to a range over the past year of $1.705 to $3.63. Compared to Friday, shares in both GUD<\/span> and GWA<\/span> were little changed at the same time.
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