The difference between a Buy and a Hold recommendation on Iluka (ILU) these days is simply a difference in time-frame. The new management team is facing some serious headwinds, apart from the fact that prices for the company’s key products are expected to drop from hereon plus a stronger Australian dollar is eating into its profits.
While many experts believe the upcoming 2006 result may disappoint and bring along some asset write downs, Macquarie analysts suggested this morning that market expectations for 2007 earnings are still too high as not everyone is incorporating the same level of operational cost increases as the broker has done. Macquarie believes the consensus figure for 2007 earnings is in the vicinity of $140m compared with its own estimate of a mere $123m.
The broker also believes there is a possibility management may issue a rather conservative guidance for the year ahead, in order to be able to possibly surprise at the end of it.
On a longer term horizon however many an expert believes shareholders should be rewarded for their loyalty and/or foresight. Some believe that a general decline in base metal prices in combination with more resilient zircon prices in combination with a cheap valuation could well trigger corporate interest.
The only one who seems to think Iluka’s valuation is still too high is GSJB Were. The broker is the only one with a negative short term recommendation among the ten leading experts FNArena monitors on a daily basis: Underperform/LT Hold.
Analysts at Smith Barney Citigroup speculate the operational review by the new management team could possibly lead to the closure of the “increasingly marginal Southwest mines” in Western Australia.
The ten experts currently rate the stock our times the equivalent of Buy, five times Neutral and one time (GSJBW) negatively. Good for a reading of 0.4 on the FNArena Sentiment Index.