{"id":59557,"date":"2012-02-24T12:14:00","date_gmt":"2012-02-24T01:14:00","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/02\/24\/zircon-uncertainty-weighs-on-iluka\/"},"modified":"2012-02-24T12:14:00","modified_gmt":"2012-02-24T01:14:00","slug":"zircon-uncertainty-weighs-on-iluka","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/02\/24\/zircon-uncertainty-weighs-on-iluka\/","title":{"rendered":"Zircon Uncertainty Weighs On Iluka"},"content":{"rendered":"

\n\t – Iluka<\/span> delivers solid full year result
\n\t – Build up in inventories a potential issue
\n\t – Zircon price outlook uncertain
\n\t – Earnings estimates lowered
\n\t – UBS downgrades to Neutral, suggests caution is justified<\/strong><\/p>\n

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

\n\tNet profit after tax for Iluka<\/span> ((ILU<\/span>)) for 2011 was $541.8 million, a significant increase from the 2010 profit of $36.1 million, thanks to significant increases in minerals sands prices over the course of the year.<\/p>\n

\n\tWhen one-off items are removed the 2011 result was a little better than had been expected by the market. UBS notes lower costs helped in this regard, though these costs came down due primarily to a build up in inventories.<\/p>\n

\n\tUBS points out this means Iluka<\/span> was effectively limiting sales to support recent price increases. This need, and the fact competitors may look to settle at lower prices over longer periods than Iluka<\/span> has recently settled, creates some uncertainty in UBS's view.<\/p>\n

\n\tCiti<\/span> agrees, noting Iluka<\/span> has lowered zircon production guidance from around 550,000 tones to 500,000 tonnes<\/span> for 2012 given weak short-term demand conditions. Brokers have accordingly lowered production estimates to reflect this new guidance, while also trimming expectations for rutile<\/span> and synthetic rutile<\/span> output.<\/p>\n

\n\tChanges to production forecasts have translated into changes to earnings expectations. Macquarie for example has lowered its 2012 earnings per share (EPS) forecast to 250c<\/span> from 303c<\/span> previously, while its 2013 estimate falls to 371c<\/span> from 386c<\/span>.<\/p>\n

\n\tCiti<\/span> has been similarly severe with changes to its forecasts for the coming year, lowering its EPS estimate by 21% to 261.3c. Consensus EPS forecasts for Iluka<\/span> according to the FNArena<\/span> database now stand at 252.9c this year and 349.5c in 2013.<\/p>\n

\n\tDespite the cuts to its estimates, Citi<\/span> continues to rate Iluka<\/span> as a Buy. While the outlook for the zircon market this year is not clear Citi<\/span> argues the market is looking too much at the short-term as ongoing structural deficits in mineral sands markets suggests no weakness in prices. As well, Citi<\/span> notes Iluka<\/span> has the balance sheet strength to carry inventory through the current period of uncertainty. <\/p>\n

\n\tMacquarie is among those to agree with the positive view of Citi<\/span>. On Macquarie's numbers recently settled rutile<\/span> price increases of 80-90% should deliver an uplift of around $500 million over margins achieved in the second half of last year.<\/p>\n

\n\tEven allowing for a dividend rate of 50%, which is above management's guidance for a payout ratio of 40%, these numbers suggest net cash of more than $700 million by the end of this year. For Macquarie, this suggests potential for higher dividends or capital management.<\/p>\n

\n\tUBS argues a more cautious view is justified, as the uncertain zircon market outlook implies further increases in prices will be tougher to achieve. Given this, and the fact Iluka's<\/span> share price has risen strongly over the past two years on the back of higher prices, is enough for UBS to downgrade to a Neutral rating from Buy.<\/p>\n

\n\tThis brings broker ratings closer to balanced, as the FNArena<\/span> database shows Iluka<\/span> now scores five Buys compared to three Hold recommendations. The consensus price target according to the database is $20.57, down from $21.07 previously.<\/p>\n

\n\tShares in Iluka<\/span> today are weaker and as at 12.00pm the stock was down 24c<\/span> at $16.62. Over the past year the stock has traded in a range of $9.50 to $19.46, the current share price implying upside of more than 24% relative 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 Iluka delivered solid full year results the zircon outlook has become more clouded, to the extent UBS suggests a more cautious view on the stock is now justified.<\/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\/59557"}],"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=59557"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59557\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59557"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59557"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}