Top Gainer: White Energy (WEC)
After hitting an all-time high of $4.16 nine months ago on 11th October 2010, WEC has been in freefall, and now sits at less than half that amount. Despite today’s 11.7% surge taking its two-day gains to 15.1%, it sits languishing near its post-GFC lows at just $2.06 – the same level it was at in early 2007. It was the failed A$486m Cascade coal transaction that was the catalyst for the recent share price decline, with many investors seeing this as proof that its technology simply didn’t work.
However it should make investors confident that one of WEC’s directors John Kinghorn has recently doubled his stake in the company, spending $19.2 million to become a substantial shareholder with 6.3 per cent of WEC.
WEC is the exclusive worldwide licensee of the Binderless Coal Briquetting (BCB), which is clean coal technology developed by the CSIRO. According to WEC, BCB is “a low cost mechanical process that upgrades high moisture, low value sub-bituminous and lignite coals through a process of dehydration and compaction. The resultant product is a dense, physically and chemically stable briquette with higher energy content and value which can be handled like normal coal.”
Although the share price has been hammered in recent times and there is a cloud over the future for this clean coal company, the 15.1% jump in two days suggests that things are improving or that there is the possibilty that the company could be subject to a takeover bid. Knight Capital’s report on Emerging Australian Coal Producers says that it believes that coal sector consolidation will continue. “We are bullish on the overall coal sector consolidation theme,” it says. “Over the last 3 years, most of the listed independent larger and medium sized coal companies have been taken out or are already in play,” it notes. It lists White Energy as one its preferred plays in the coal space, even in the absence of M&A activity. You can read the full report here.
There are plenty of brokers bullish on the stock with price targets ranging from $3.50-$4.25, although each of them place a caveat that the operational issues in Indonesia need to be resolved. As an investor, issues such as this should ring alarm bells.
Asit Sen, Madison Williams has a buy on WEC with a price target of A$4.25. “We see underlying value in White Energy’s franchise, particularly given the track record of the ex-Felix senior management team,” Sen writes. “However, the next six months are key, particularly with respect to progress in resolving operational issues at the Tabang facility in Indonesia.” Sen has a fair-value range of A$3.00-A$5.50 but notes that the valuation is sensitive to production ramp up, the discount rate, and margins.
Fleur Grose, Southern Cross Equities also has a buy, with a lower price target of $3.50. “We believe the
technology works and success at the first plant will result in the approval of others,” writes Grose. “An upgrade of the coal drying system, the dust extraction system, and the briquette handling and stockpiling systems is due to be completed by September which will allow ramp-up thereafter.” You can read the full report here.
Meanwhile David Haddad from Citigroup, lists WEC as a high-risk buy, with a price target of $4.10, slashed from its previous price target of $5.55. Haddad notes that the failed A$486m Cascade coal transaction has flattened the share price because many saw this “as proof that the binderless briquetting technology did not work and traditional coal assets were needed to fill the gap.” You can read the full report here.
Based on Thomson Reuters data, three analysts have a buy on the stock, one has a hold, none have a sell.
Chart: Share price over the year to 21/07/2011 versus ASX200 (XJO)
Stock code: WEC
Charts: White Energy Limited
More news: White Energy Limited
Investor Centre: White Energy Limited
Biggest Loser: CSR (CSR)
Today’s 4% fall took CSR’s share price losses to 11% over the past two weeks and 25% over the past five months since it undertook a share consolidation. All this despite full year profit rebounding and the announcement that it is assessing a number of opportunities for bolt-on acquisitions between $25-100 million each. It also said that the sale of its Brendale property will be completed in the second half of 2011/12.
Incoming chief executive Rob Sindel told shareholders the company will focus on making acquisitions that complement its existing portfolio of businesses, especially in the multi-residential construction area and he expects more acquisition opportunities to arise in the next 12 to 24 months. The sale of CSR’s property at Brendale in Queensland had been delayed by the January floods, and will now be completed in the second half of 2011/12.
Apart from the recent floods, CSR is facing a number of headwinds, from a softer property market to the impact of the carbon tax. It expects Australian housing starts to be around 150,000 to March 31, 2012, however this may be an optimistic projection and it admits that non-residential markets for building product sales remain challenging.
However natural disasters can have a silver lining for investors. Chris Elliott, principal private client adviser for Shadforth Financial Group, says the estimated damage bill from the “summer of natural disasters” is expected to be more than $5.8 billion. “Any initial slow down will be more than offset by a recovery spend needed to get Queensland back on its feet,” he says. And CSR is one of those set to benefit.
As fate would have it, offloading its sugar division turned out to be a blessing as the state’s far north sugar cane regions were ravaged by a cyclone. CSR now focuses on making and suppling building products in Australia and New Zealand and operates Australia’ s second largest, but one of the world’s lowest costs, aluminium smelters. Elliott says the company offers a strong balance sheet after selling its sugar division. “With the potential to participate in rebuilding Queensland via building products and Viridian glass operations, we are forecasting earnings per share growth of 144 per cent in 2012,” Elliott says. “CSR represents good buying for growth and yield.”
Sean Conlan, Macquarie Private Wealth also has a buy on the company. “Together with the recovery from natural disasters and general market uncertainty, no firm numbers have been provided in terms of expectations for full-year 2012,” says Conlon. “The strong Australian dollar remains a headwind, but this building materials company will continue to benefit from lower net finance costs in the near term, given the balance sheet remains in a net cash position.”
And while it maintained a buy recommendation on CSR, UBS expects weakness in housing to continue over the next six months and its forecasts and price targets right across the sector have been lowered.
Based on Thomson Reuters data seven analysts have a buy on CSR, six have a hold with just one sell.
Chart: Share price over the year to 21/07/2011 versus ASX200 (XJO)
Stock code: CSR
Charts: CSR Limited
More news: CSR Limited
Investor Centre: CSR Limited
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