Investors Sell Wmc On Profit Revisions

Sydney Morning Herald

Tuesday November 12, 1996

By BRUCE HEXTALL Resources Writer

WMC shares have been dumped by investors after analysts across the board downgraded their 1997 net profit forecasts from beyond $500 million to as low as $250 million because of rising concern that commodity prices will be flat over the next two years.

The concern has seen more than $1.7 billion wiped off WMC's market capitalisation over the past two and half months. WMC's shares finished at $7.55 yesterday versus the nearly $9 they were fetching at the end of August.

"For the next 18 months to two years there is not a lot of production growth in front of WMC so the company's earnings are very much at the mercy of commodity prices," said Mr Peter Chapman of stockbroker, Burdett Buckeridge.

In the year to June 1996 WMC made a net operating profit of $392 million, a 32 per cent boost in earnings thanks to the $800 million expansion of its WA nickel operations and the expanded alumina base resulting from formation of the Alcoa Worldwide Alumina (AWA) joint venture with Alcoa of America.

But profit growth, particularly from the AWA joint venture, is unlikely to be repeated in the current year.

According to the Barcep profit survey, carried out by BZW Investment Management, the mid-range forecast by stockbroking analysts at October 31 was $370 million. Forecasts now range from $276 million to $450 million.

ABN-AMRO Hoare Govett analyst, Mr Russell Skirrow, said overseas brokers had been even more optimistic early this year, with at least one forecasting a $1 billion profit for 1996-97.

The heady forecasts had been driven by commodities analysts being overly bullish about commodity prices. "In the past couple of months they have started to come out of their ivory towers," Mr Skirrow said.

His firm placed a sell recommendation on WMC in May based on what companies were telling it about their selling environment. ABN-AMRO now believes WMC's share price is near its low and could bounce back as the market looked beyond current year earnings.

He pointed out WMC was now trading below its net asset value of $9 a share.

But in the short-term, Bell Securities analyst Mr Bruce Preston said weakening aluminium prices were expected to flow through to the alumina market at a time when contract prices were being negotiated, putting some pressure on the AWA joint venture.