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Price target lowered

Navitas (NVT)

 

Chart: Share price over the year to 25/11/2011 versus ASX200 (XJO)

 

Share Price: $3.55

Broker Calls: Credit Suisse – downgrade to neutral

P/E: 17.42

Market Cap: $1,351 million

Navitas has several challenges, not least of all the uncertainty caused by changing government policies in relation to the issuing of visas to international students.

The company admits there is ongoing weakness in UK and Australian enrolments although this had been partially mitigated by strong enrolment growth in Singapore and Canada. ‘The company remains confident in the long-term drivers of its growth, including continued growth of the international education sector, with steady long-term increases in enrolments,’ Navitas said.

It’s difficult to find a broker that’s positive on the company, with Macquarie, Citi, Credit Suisse and Deutsche all placing holds or neutrals on the stock. Macquarie has trimmed earnings estimates due to declining student numbers, Citi has lowered forecasts due to a subdued outlook from management, Credit Suisse thinks it’s fully priced and Deutsche has dropped its price target.

Deutsche notes that the decrease in enrolments has accelerated this quarter and the outlook looks grim. In dropping its price target to $3.65 it said that if enrollments don’t start to pick up soon the share price will come under further pressure. 

 

Downgrades

SMS Management & Technology (SMX)

 

Chart: Share price over the year to 25/11/2011 versus ASX200 (XJO)

 

Share Price: $4.68

Broker Calls: RBS – Hold, UBS – Buy

P/E: 10.57

Market Cap: 327 million

Having lost more than 25% of its value over the past year, SMS Technology (SMX) shareholders are probably wondering if there’s more pain on the horizon. For longer term shareholders they’ve been through it all before – SMX fell from $7.75 to $1.70 in the GFC before quadrupling in price the following year.

RBS believes there is continued earnings risk for SMX, and has slashed its price target from $6.82 to $5.26 and downgraded the company from a buy to a hold.  Other brokers have also reduced their price targets, but still remain fairly bullish on the stock. Macquarie has an outperform on SMX, but lowered its price target to $6.25, while UBS has dropped its target to $6.50 while retaining a buy. 

Meanwhile John Rawicki from Oracle Asset Management believes the company has a bright future. ‘With a cash-rich balance sheet and no debt, this established IT services and business company is in pole position to start making acquisitions at a time when valuations remain depressed,’ he says. ‘The IT industry is experiencing strong growth as businesses and governments begin to invest in new high-tech systems.’ Rawicki says that encouraging full-year 2011 results show that the company is reaping the rewards of good management and industry growth.

 

Sells

OneSteel (OST)

 

Chart: Share price over the year to 25/11/2011 versus ASX200 (XJO)

 

Share Price: $0.815

Price target: $0.97 (Deutsche)

Broker Calls: Deutsche – Sell, WilsonHTM – Sell, Patersons – Sell

P/E: 4.69

Market Cap: $1,006 million

Australia’s manufacturing industry has faced the worst period since the Great Depression. Jobs have been axed and the share prices of Australia’s largest steelmakers have plummeted. OneSteel’s share price says it all, down 69% over the past year.

Although its share price performance has been dismal, there appears to be two distinct camps when it comes to the company’s future. Patersons, WilsonHTM and Deutsche all have firm sells on the stock and RBS has downgraded it and halved its price target. Meanwhile JP Morgan, Credit Suisse, Macquarie and UBS all have Outperforms or Buys on the steelmaker, with JP Morgan placing a price target of $1.76 on the stock – more than double its current value.

However when looked at more closely, all the bullishness looks decidedly bearish. JP Morgan has slashed its price target by 25%, Credit Suisse says it ‘can’t see anything positive in the near term’, UBS’s Buy is based solely on a bullish view on iron ore prices (it thinks the steel side of the business has its problems), and Merrill Lynch has cut its price target and placed a ‘high risk’ on the stock.

Hamza Habib from Patersons says that given the substantial change in earnings, current market conditions may not be favourable for the company to recover in the short term. ‘The company’s iron ore business, representing more than 80 per cent of full-year 2012 EBIT, is currently under pressure.’

Peter Day from WilsonHTM also has a sell, pointing out that this steel maker and iron ore exporter recently announced a first half profit downgrade after the recent slump in iron ore prices. ‘Revised net profit expectations of between $55 million and $75 million were less than half of what some analysts had forecast and iron ore spot prices have fallen by about 30 per cent in the past month.’

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