Taking stock ::

Author: Sue Mitchell, Eli Greenblat, Helena Keers, Fiona Tyndall
Date: 01/12/2006
Words: 699
Source: AFR
Publication: The Financial Review
Section: Market Wrap
Page: 34

Grocer gains ground

Analysts have raised share price targets and ratings for Metcash after Wednesday's encouraging first-half profits, which showed the grocery wholesaler continues to gain ground against the supermarket chains following last year's $900 million Foodland acquisition. Goldman Sachs JBWere raised its short-term rating from market perform to outperform and its share price target from $4.70 to $4.85. Credit Suisse upped its rating from sell to neutral and Morgan Stanley increased its price target from $5.05 to $5.14. Citigroup says the shares could reach $5.30 in 12 months. Metcash rose 16? to $4.55 yesterday and is trading in line with levels at the beginning of 2006 after falling as low as $3.66 in July. It is outperforming Woolworths and Coles in sales and earnings growth, but the stock is trading on a multiple of 18.2 times forecast 2007 earnings per share, compared with Woolworths' multiple of 21.3 and Coles' 19.9.

Sue Mitchell

Vaccine a big shot

CSL is more than just a blood plasma company. It has a pipeline of exciting and innovative pharmaceutical products at varying stages of discovery and commercialisation. Its leading pharmaceutical application at the moment is the anti-cancer vaccine Gardasil. The vaccine for cervical cancer will save hundreds of thousands of lives around the world. The government has recently announced it will partially fund the immunisation of an expected 1.4 million girls across Australia. Sales are expected to begin in 2007 with other nations that will immunise their populations using CSL's drug. The company believes it could earn billions of dollars in royalties from use of the drug. The main concern of some analysts is the level of reimbursement some governments might require for Gardasil, which could limit market growth.

Eli Greenblat

Profit growth forecast

Analysts at Foresight Capital published a price target of $4.80 for the property maintenance services company yesterday. They said the company should deliver another year of double-digit profit growth as the summer boosted Australian property maintenance activity and new contract wins generated revenue. On Wednesday, the company reported a half-year net profit of $7.8 million, up 8 per cent on the previous corresponding period. Management has signalled it expects 10.5 per cent growth in earnings in full-year 2007. The company is also touted as a takeover target for Transfield Services and United Group. This has helped boost shares 38 per cent this year. Despite the increasing share price, the stock is still trading at a relatively low price-earnings multiple of about 16.7 times, compared with others in the industry that trade at more than 20 times.

Helena Keers

Below expectations

ABC Learning Centres said this week that it could double in size in the next two years and would take on more debt as it chases acquisitions. But shares in the company have slipped since the news as its forecast for growth was below analyst expectations. Fund manager Roger Montgomery of Clime Capital says that to justify its current price return on equity needs to go to 18.6 per cent from the present 9.8 per cent. "To do this, net profit after tax earnings would have to rise to $300 million assuming the payout ratio remains about 50 per cent," Montgomery says. "That means an acquisition funded by $1 billion of debt needs to be purchased on an NPAT [net profit after tax] multiple of no more than 6.6 times, but the most recent acquisition was six times [earnings before interest, tax, depreciation and amortisation]." He says the company's situation is precarious.

Fiona Tyndall

On the way up

A Lend Lease subsidiary this week landed a $200 million contract to provide housing for the US Marine Corps and gave its share price another fillip. After Wednesday's news that Actus Lend Lease had won the military housing contract the company's shares yesterday hit a five-year high of $17.53. Last week Lend Lease settled its purchase of a $514 million development site in Singapore. The upward trend began with a healthy full-year result and then the winning of a $700 million plus contract to build the Melbourne headquarters for Australia and New Zealand Banking Group. Lend Lease still trades at a discount to the valuation of many analysts of about $18 a share. The mix of its construction, retail and residential business, particularly in the UK, and its funds management offerings have given hope of better times ahead after a poor start to the millennium.

Mathew Dunckley

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