##{"id":60903,"date":"2012-11-15T12:04:58","date_gmt":"2012-11-15T01:04:58","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/11\/15\/csr-looking-better-but-risks-remain\/"},"modified":"2012-11-15T12:04:58","modified_gmt":"2012-11-15T01:04:58","slug":"csr-looking-better-but-risks-remain","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/11\/15\/csr-looking-better-but-risks-remain\/","title":{"rendered":"CSR: Looking Better But Risks Remain"},"content":{"rendered":"

\n\t – CSR interim result viewed as reasonable
\n\t – Aluminium<\/span> better than expected, Viridian a disappointment
\n\t – Brokers adjust forecasts and price targets
\n\t – Downside risk to earnings mean Neutral ratings dominate<\/strong>
\n\t <\/p>\n

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

\n\tYesterday building materials producer CSR ((CSR)) reported interim underlying net profit of $20.4 million, the result down almost 60% on the previous corresponding period but one that was viewed as reasonably solid by brokers.<\/p>\n

\n\tResult composition was different to expectations. The aluminium<\/span> division delivered a stronger result than expected thanks to higher sales and better realised<\/span> pricing, while the Viridian glass operations again fell short thanks to continuing tough operating conditions. The latter's performance and a recent change in management for the business has prompted a review of operations and cost structure.<\/p>\n

\n\tWith around 80% of second half aluminium<\/span> sales locked in at a price around 20% above the current spot price, earnings forecasts for CSR have been adjusted post the interim result. BA Merrill Lynch has lifted full year forecasts by more than 30%, while Macquarie's estimates for the full year have risen by around 20%.<\/p>\n

\n\tConsensus earnings per share (EPS) estimates for CSR according to the FNArena<\/span> database now stand at 9.1c for FY13<\/span> and 14.3c for FY14<\/span>. The increase in earnings forecast for FY14<\/span> reflects in large part an expected improvement in Australian residential building activity.<\/p>\n

\n\tThis implies some earnings risk, as while BA Merrill Lynch is forecasting a 14% increase in Australian housing starts in FY14<\/span> the broker has a low level of confidence in this increase being achieved. As well, BA-ML's EPS forecast for FY14<\/span> for CSR of 16.4c implies an improvement in the Viridian business and again the broker is not confident this can be achieved given the adverse combination of a high Australian dollar and weak demand.<\/p>\n

\n\tDeutsche Banks is similarly cautious, noting while its forecast is for Australian housing starts in FY14<\/span> of 144,000, if the recovery is slower than expected and starts rose to just 139,600 there would be a 9% reduction in CSR's earnings before interest and tax.<\/p>\n

\n\tIn the view of Citi<\/span>, the CSR result showed management continues to do a good job in managing the operating environment, but the fact both structural and cyclical factors continue to run against the company limit the potential for any share price outperformance<\/span>.<\/p>\n

\n\tFor Citi<\/span> this is enough to maintain a Sell rating on CSR, especially given on balance the broker continues to see downside risk to earnings forecasts. BA-ML agrees with the rating, suggesting better exposure to the Australian building materials sector can be had via Fletcher Building ((FBU<\/span>)). For US exposure the broker prefers James Hardie<\/span> ((JHX<\/span>)).<\/p>\n

\n\tOthers in the market are less negative, as post reviews of the interim result the likes of Deutsche Bank, UBS, JP Morgan and Macquarie all rate CSR as a Hold. Macquarie sees some valuation upside but suggests performance at Viridian needs improve if this upside is to be realised<\/span>, while JP Morgan suggests the stock is fair value around current levels.<\/p>\n

\n\tWhile no broker ratings were adjusted post CSR's interim result, the changes to earnings forecasts mean price targets have been revised. Macquarie's target has increased to $1.75 from $1.44 and JP Morgan's to $1.70 from $1.60, while the consensus price target according to the FNArena<\/span> database has risen to $1.70 from $1.63.<\/p>\n

\n\tIn a weaker overall market shares in CSR today are higher and as at 11.30am the stock was up 4c<\/span> at $1.705. This compares to a trading range over the past year of $1.145 to $2.32. <\/p>\n

\n\t <\/p>\n

\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":"