Ani Profits Reviewed As Asia Joins Problems List

Sydney Morning Herald

Saturday November 22, 1997

By ANTHONY HUGHES

After years of battling problems with its misguided European investments, Australian National Industries has found another obstacle to its profit recovery - uncertainty in Asia and plummeting commodity prices.

On Wednesday, ANI's share price slumped to a low of $1.25, levels not seen since early 1997 when problems with the waste-to-energy businesses Holter and ABT were at their worst.

The reason for this week's fall was a move by one leading analyst, Mr Matthew Cook of J.B. Were & Son, to revise his 1998 net profit forecast for the company from $75 million to around $65 million. J.B. Were was one of several brokers tipping profits to beat $70 million in 1998. Other analysts are expected to follow suit and lower their forecasts.

The weaker profit outlook reflects concern that ANI will be hurt by the troubled resources sector and weakening commodity prices that are placing in doubt projects in the region.

The resources and rail segment of the engineering business contributed $706 million or 30 per cent of ANI's revenue in the year to June 1997 and 41 per cent of engineering (excluding Holter) operating profits.

ANI has only a few operations in Asia but is affected indirectly because of the equipment it makes for the Australian mining industry and exports to South-East Asia. If mines close or fail to proceed, ANI's sales volume will fall.

The average profit forecast for ANI, according to the Estimate Directory, is around $67 million, still significantly higher than last year's pre-abnormal net profit of $30.76 million.

These figures must be treated with a little caution because some include expected losses on Holter as an abnormal and others do not.

ANI's managing director, Mr Peter Stancliffe, believes ANI can double its earnings this year by containing losses from Holter and seeing improvements in the Australian businesses.

Mr Stancliffe rejects the view ANI is operating in mature markets and believes it can leverage growth from Australia's mining expertise to increase exports.

ANI would probably need to do better than double profits to please the market - this explains why it is trading on an earnings multiple which is a discount to other industrials.

Offsetting this is improved confidence in management which has made a series of bolt-on acquisitions recently and has reduced the Holter exposure to around $50 million in assets by selling much of the business.

"Good management should more than offset these sort of problems," one analyst said. Another, who also declined to be named, said: "I would say it has pretty limited downside from here. Other stocks will be hit harder from the Asian crisis."

Annual net profit/loss ($m)
year to June 30 after tax and abnormals, and dividend per share
1991     80.4    9c
1996  -213.2    2c
1997     30.8     2c