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Daily ShareChat: Tenon

By Jenny Ruth

Wednesday 21st April 2010

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 Jenny Ruth

US-based but New Zealand-listed wood products company Tenon's depressed earnings are beginning to stabilise but there is considerable uncertainty over the strength and duration of any recover in the US housing market, says Forsyth Barr analyst John Cairns.

"Tenon has made considerable progress in reducing its debt levels and appears capable of sustaining bottom-of-the-cycle earnings," Cairns says.

Tenon's 17% decline in operating profit to US$5 million for the six months ended December was in line with expectations and its 4% fall in revenue to US$159 million was "a creditable outcome in view of the depressed US housing renovation market," he says.

The first-half earnings was up 25% on the depressed earnings for the previous second-half, the six months ended June 2009. Tenon's earnings are usually stronger in the second half.

"Same-store sales of the US 'big box' building retailers have declined for an unprecedented 14 consecutive quarters which is a good indicator of the extent of the decline in US remodelling demand," Cairns says.

Still, there has been a significant increase in housing affordability in the US and reductions in housing inventory of both existing and new homes. However, a key risk is the impact of rising US unemployment on housing demand.





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