By Jenny Ruth
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Monday 11th January 2010 |
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Resins company Nuplex's profit upgrade just before Christmas, its second in just over a month, reflects management's increasing confidence in the sustainability of the market upturn and the ability of the restructured business to benefit from the recovery, says Dennis Lee, an analyst at Craigs Investment Partners.
"Overall demand conditions are still far from normal but Nuplex management notes demand has recovered from the low point and said it is seeing promising signs that the gradual recovery will continue into the foreseeable future," Lee says.
"Asia remains the standout region in terms of volume growth and profitability and all other regions except the US are showing signs of improvement," he says. Nevertheless, the US is still profitable.
The major risk to Nuplex is rising raw materials costs but the company has been able so far to contain those through product pricing, he says.
Lee has raising his forecast earnings before interest, tax, depreciation and amortisation in the year ending June by 9% to $115 million. He has also raised his target price by 9% to $3.28.
"We believe Nuplex's earnings are highly leveraged to the rebound in global economic activity now underway." The latest leading indicators support a continuation of the recovery, Lee says.
BROKER CALL: Craigs Investment Partners rate Nuplex as buy (when the share price was $2.79).
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