Daily ShareChat: Nuplex

Resins manufacturer Nuplex Industries' fortunes are inextricably linked to key economies and the latest industrial numbers suggest a slowdown in Europe, Australasia and the US, says Nachiket Moghe, an analyst at Aegis Equities Research which is owned by Morningstar.

"High exchange rates in Europe and Australasia in particular might further dampen exports and hence underlying growth in these economies, Moghe says.

As well, consumer spending in the US remains subdued although Asia, particularly China, continues to show surprising resilience and high growth rates, he says.

"We conclude that demand for resins might be a little weaker than originally envisaged."
Rising oil prices may also put pressure on Nuplex's margins in the short term, although the company has the ability to pass on cost increases to its customers, albeit with a lag.

Reflecting these pressures, Moghe has cut his net profit forecast for the year ending June 2011 to $72 million from $78.5 million. His 36.5 cents earnings-per-share forecast is at the bottom end of the consensus range of 36 cents to 42 cents.

The global credit crisis highlighted Nuplex's vulnerability to global events - resins demand fell 30% in Europe and 20% in other regions, he says. "The crisis is a timely reminder that volumes can significantly dry up should there be another upheaval."

Recommendation: Hold.

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