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Wednesday 8th September 2010 |
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Resins company Nuplex Industries produced a record profit despite volumes being below the 2008 peak, says Nachiket Moghe, an analyst at Aegis Equities Research, which is now owned by Morningstar.
Nuplex's $71 million net profit for the year ended June compared with Moghe's $62 million forecast.
"This is a testament to the cost cutting and efficiency improvements the firm has achieved."
While management gave no guidance on current year earnings, saying Nuplex's performance will depend on economic activity, "in light of the stupendous full-year results, we are lifting our 2011 forecast to $78.5 million from our previous forecast of $64 million," he says.
"While we are expecting a modest growth in revenues, earnings will benefit from some margin improvement and much lower interest expenses."
Moghe says he understands demand is stronger than a year ago, although volumes are still below pre-global financial crisis levels.
"Notwithstanding our earnings upgrade, we remain cautious on the stock, given the prevailing uncertainties in Europe and America and the potential reduction in Chinese growth," he says.
"Nuplex is highly leveraged to global automotive and industrial demand conditions which remains a bit fragile in our view." Moghe values the shares at $2.90.
Recommendation: Hold.
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