By Jenny Ruth
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Tuesday 21st September 2010 |
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The one-off net earnings gains from Canterbury's earthquake for Steel & Tube Holdings "is not very significant," says Dennis Lee at Craigs Investment Partners.
He estimates it will boost earnings in the year ending June 2011 by 2.2%, peaking at 4.2% in 2012 and fading to 1.2% by 2014.
While the Treasury has doubled its estimated cost to $4 billion, "in our view, the final estimate will not be known until the aftershocks have ended and the final audit of damage is completed. This may be some time away," Lee says.
Steel & Tube's own operations in Canterbury suffered only minimally but, as a major steel distributor, it should benefit from the reconstruction, he says.
He assumes $3 billion will go into construction work and that about 5% of the construction cost is the steel input with the rebuilding to continue for three to four years.
"If we assume Steel & Tube holds on to its market share of 28%, the incremental sales revenue .. from the reconstruction of Canterbury is around $39 million."
Downside risks include domestic growth failing to meet expectations while upside risks include that Steel & Tube benefits more than expected from Canterbury's reconstruction.
"Our hold rating reflects our view that the share price has had a good rally post-Canterbury earthquake."
Recommendation: Hold.
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