{"id":59178,"date":"2011-11-18T11:35:32","date_gmt":"2011-11-18T00:35:32","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/11\/18\/iluka-remains-in-a-solid-position\/"},"modified":"2011-11-18T11:35:32","modified_gmt":"2011-11-18T00:35:32","slug":"iluka-remains-in-a-solid-position","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/11\/18\/iluka-remains-in-a-solid-position\/","title":{"rendered":"Iluka Remains In A Solid Position"},"content":{"rendered":"

\n\t– Iluka<\/span> updates on market conditions
\n\t– Mixed outlook, short-term zircon market softness, TiO2<\/span> market still tight
\n\t– Brokers adjust models and price targets<\/strong>
\n\t <\/p>\n

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

\n\tMinerals sands play Iluka<\/span> ((ILU<\/span>)) yesterday provided a briefing on both market conditions and production expectations, brokers responding by updating their models for the company.<\/p>\n

\n\tFrom a market conditions perspective, Citi<\/span> notes Iluka<\/span> sees some short-term softness in the zircon market, which is a reflection of opaque demand from China. Medium-term Citi<\/span> expects the market will remain in deficit, one that should grow over time given constraints to existing supply and a lack of new projects.<\/p>\n

\n\tPost the update on zircon market conditions JP Morgan has trimmed its price forecasts by 14% in 2012 and by 12% in 2013, though the broker's long-term price forecast is unchanged at US$1,100 per tonne<\/span>. Citi<\/span> has been less concerned and has actually lifted its price expectations from the first quarter of 2012 to reflect the fact the market is likely to remain in deficit.<\/p>\n

\n\tWith respect to TiO2<\/span> (titanium dioxide), JP Morgan's price forecasts are unchanged. The broker sees some upside to consensus estimates given expectations of still solid medium-term market dynamics. The TiO2<\/span> market is expected to be in deficit until at least 2015.<\/p>\n

\n\tUBS agrees there is upside risk to TiO2<\/span> price expectations, especially as management at Iluka<\/span> is likely adopting a conservative stance with respect to market commentary. UBS's numbers suggest a 20% price rise for TiO2<\/span> in the first half of 2012, with scope for increases of 40-50% based on higher pigment prices.<\/p>\n

\n\tMore company specific was production guidance offered by Iluka<\/span>, which UBS notes was slightly higher than expected with respect to volumes through FY13<\/span>. Even factoring in higher long-term costs and capex<\/span>, UBS has lifted earnings estimates by 3% in FY12<\/span> and by 7% in FY13<\/span>.<\/p>\n

\n\tThis leaves UBS forecasting earnings per share (EPS) for Iluka<\/span> of 123c<\/span> this year, rising to 239c<\/span> in 2012 and 238c<\/span> in 2013. Following other changes to broker estimates post the update, consensus EPS forecasts for Iluka<\/span> according to the FNArena<\/span> database now stand at 122.3c<\/span> this year and 263.5c<\/span> in 2012.<\/p>\n

\n\tPost the update, RBS<\/span> Australia left with the view Iluka's<\/span> commitment to prudent investment criteria means potential for substantial dividends being paid in future years. Factoring in a 50% payout ratio, Iluka<\/span> offers a yield of 9% in 2012 and 10% in 2013 on RBS's<\/span> numbers.<\/p>\n

\n\tEven allowing for such payouts, RBS<\/span> expects Iluka<\/span> would have enough cash to pursue expansion options. Management has indicated it would return cash to shareholders if no suitable investment options were identified.<\/p>\n

\n\tDeutsche notes management has laid out a clearer path to maintaining its market dominance, this involving kiln restarts, deposit extensions, project optimisation<\/span> and ongoing exploration. Iluka's<\/span> resource should be lifted at an update next February, while Deutsche also sees scope for better conversion of resources to reserves from the current level of around 30%.<\/p>\n

\n\tPost the update there has been only a single change in rating for Iluka<\/span>, this courtesy of RBS<\/span> Australia with a downgrade to Hold from Buy. RBS<\/span> suggests while at current levels there is around 10% share price upside to meet its valuation, current market uncertainty suggests mining stocks are unlikely to run up to fair value in the shorter-term.<\/p>\n

\n\tOthers in the market have continued to look at longer-term upside potential from ongoing mineral sands market deficits, so the FNArena<\/span> database shows a total of six Buy recommendations compared to just two Hold ratings.<\/p>\n

\n\tThe consensus price target for Iluka<\/span> according to the database now stands at $20.34, up from $19.94 prior to the update. Targets range from Deutsche Bank at $18.20 to Citi<\/span> at $25.00.<\/p>\n

\n\tShares in Iluka<\/span> today are weaker and as at 11.15am<\/span> the stock was down $1.03 or 6% at $16.07. This compares to a trading range over the past year of $7.38 to $19.46. The current share price implies upside of around 24% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t 
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

While RBS Australia has downgraded to a Hold rating, a market update from mineral sands play Iluka has seen the majority of brokers retaining their Buy ratings.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59178"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59178"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59178\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59178"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59178"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59178"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}