Price target decreases & downgrades

Aquarius Platinum (AQP)

Chart: Share price over the year to versus ASX200 (XJO)


Share Price: $2.50

Price target: $2 – $4.10

Broker Calls: Neutral – UBS

Foreward P/E: 8.93

Market Cap: $1.17 billion

Aquarius Platinum, the world’s fourth-largest platinum producer, has blamed safety stoppages in South Africa for the company’s poor performance in 2011. But it doesn’t stop there, Aquarius CEO Stuart Murray also pointed the finger at rising regulation in Zimbabwe.

‘All these relentless challenges make it clear that some of the stakeholders in both countries (SA and Zimbabwe) in which we operate simply do not grasp the fact that there are only 100c in the rand and 100 pennies in the dollar. There is simply no more to be taken before the operations are threatened,’ he said.

Whatever the reason, production for Aquarius is well down, with its December 2011 quarter figures showing a significant 17% slowdown in output to 105,629 ounces for the quarter ended Dec. 31, with a 26% drop at Everest mine in South Africa. What’s more, in a year to forget for platinum producers the white metal also fell 9.8% to an average $1,533 an ounce during the quarter – down from $1,700 a year earlier. Aquarius Plantinum fell 11.35% to $2.50 this week alone, and is down 59% over the past year. It had been sitting at $17.00 in mid-2008.

‘The December quarter of 2011 was a most challenging one (for) the entire platinum industry, which continues to be attacked from many angles,’ said Murray. ‘The period saw the tail end of our recent operational challenges and was exacerbated by deteriorating economic conditions, increased stoppages across the Rustenburg district and continued underperformance by the lead mining contractor,’ he said.

Aquarius is now going to limit production at Everest to 10,000 ounces a month for the next 12 to 18 months while a review is completed. Credit Suisse isn’t impressed, saying that an 87% cost increase at the Kroondal mine was a “big disappointment.”

UBS has cut its price target on the platinum producer from $3.70 to $3.30, and Citi has downgraded the stock to Neutral while dropping its price target from $3.05 to $2.80. Citi notes that not only were the last two quarters weak, but it predicts that all of 2011 will be weak as well. Citi has slashed its forecasts accordingly.

Paul Clarke, State One Stockbroking has a firm sell on the platinum producer that has operations and projects in South Africa and Zimbabwe. ‘Given the high level of sovereign risk from operating in these countries, coupled with a lack of hedging that may expose AQP to adverse movements in commodity prices, we believe the stock is a risky play,’ says Clarke. ‘Also, AQP’s dominant focus on platinum gives it little room to diversify in terms of mining other minerals.’ Likewise Morningstar has a sell on Aquarius, with a price target of $2.00.


CSG Limited (CSV)

Chart: Share price over the year versus ASX200 (XJO)


Share Price: $0.56

Price target: $0.43 (RBS) – $1.18 (Merrill)

Broker Calls: Sell – RBS

P/E: 3.59

Market Cap: $152 million

Investors in Australian IT services company CSG couldn’t be happy with the way things have panned out. The stock’s off 60% from this time last year, and the managing director Denis Mackenzie is handing in his business card after 11 years in the role. What’s more, the company issued a profit downgrade for the half-year ended 31 December 2011. Net profit for the first six months of 2012 is likely to come in at between $9 million and $11 million, which is almost 50% below the $18 million it earned in first half 2010.

Late last year, CSG’s shares were buoyed by news that a number of suitors were circling the technology and print services company. CSG builds intranet sites for large banks, offers information and communication technologies (ICT) for multinationals such as Mitsubishi Motors and technology systems for government agencies. Its printing services division sells office equipment, telephone systems and managed print services. In September last year, CSG informed the market that a suitor, offering $340 million, or $1.20 a share, was circling. It turns out that the suitor was Japan’s NEC. Other interested parties, including private equity firms, were only interested in snapping up the IT parts of the business.

On 21 December CSG revealed the bad news that talks with NEC had fallen through. “The indicative, non-binding proposal announced on 29 September 2011 at $1.20 per CSG share did not result in an offer.’ The share price reacted harshly – tumbling from $1.01 to $0.60 in a day.

Today, CSG’s share price languishes at $0.56 as the takeover disruption from last year takes its toll. Management laments that the bidding process last year was costly and disruptive to management, staff and created uncertainty with CSG’s customers.

Paul Clarke at State One Stockbroking has a sell on CSG – considering the management upheaval, the cyclical nature of IT and the time required for the business to properly turn around. RBS Australia downgraded the stock from a Buy to a Sell, citing low confidence in earnings and higher risk. 

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