Ici Warns Brokers To Lower Their Profit Expectations

Sydney Morning Herald

Friday September 12, 1997

By ANNE HYLAND

ICI Australia has taken the shine off its forthcoming profit result by warning stockbroking analysts to rein in forecasts because of difficulties in its plastics and agriculturaldivisions.

The warning led some analysts to cut their forecasts by between $5 million and $10 million to a range of $230 and $235 million for the full year to September 30.

Even so, it would still represent a 19 per cent increase on the $197.1 million net profit the company earned last year.

Analysts have forecast the chemical and plastic company will declare a final dividend of 50c, up from 44c in 1996.

ICI Australia's shares have underperformed in a rising market in the past few months since its parent company disposed of its $2.2 billion holding.

Its shares peaked at $13.50 at the end of July after ICI plc unloaded its 62.4 per cent stake in a public sale. Since then, the share price has tumbled, falling 23c to $12.18 yesterday.

Retail investors who paid $11.95 each for shares in ICI Australia would be happy with their investment, but institutional investors who paid $12.35 a share are grumbling.

Expectations were that the stock would stay above $13 following the sale because of the company's good growth potential, particularly in Asia, and strong management team.

Analysts said it was worrying ICI had warned of problems so close to the end of its financial year.

"It's really quite late in the reporting period that these problems have emerged," said one analyst, who declined to be named. "It's a concern when this is coming out in the fourth quarter and we're almost into the first quarter of the new year."

Falling plastics prices because of excess production worldwide, continued drought conditions in Australia, El Nino and falling chemical prices for some fertiliser products are expected to hit ICI's plastics and agricultural divisions.

They are the issues ICI management have told analysts about in the past two weeks in private briefings.

Even so, analysts are saying it looks cheap compared with other cyclical stocks such as Boral and James Hardie Industries. On a forecast earnings per share of 82.4c for the year to September 30, ICI is trading on a price to earnings ratio of 15.1 times. Boral is trading at 18.8 times, and James Hardie at 19.8 times.

However, there are a few analysts who argue ICI, because it is affected by large swings in commodity prices for bulk chemicals and plastics, should be primarily classed as a chemical company.

Other global chemical companies such as Dow and Du Pont are trading on a price to earnings ratio of 11.1 times and 17.9 times respectively.

HOW THE ASSETS ARE SPREAD
Plastics                        28.1%
Industrial Chemicals            22.1%
Mining                  15.5%
Consumer products               15.2%
Fertilisers                     13.4%
Advanced Sciences       5.6%*
* Some to be sold
ANNUAL NET PROFIT AND DIVIDEND PER SHARE
1995            $268.8m
1996            $197.1m
1997 forecast   $235m