Brokers Lower Sights On Wmc

Sydney Morning Herald

Wednesday January 21, 1998

By MORGAN MELLISH

Stockbroking analysts cut their profit forecasts for WMC by up to 12 per cent after the miner warned last week that the Asian crisis would hurt December half earnings.

ANZ Securities is reviewing its numbers and expects to reduce its prediction for WMC's net profit before abnormals in the year to next December 31 to between $220 million and $250 million as a result of lower nickel, copper and gold prices.

Merrill Lynch is picking a net profit for the year to June 30 of $212 million after cutting its forecast for the December half from $105 million to $92 million. The broking firm, nevertheless, recommends its clients accumulate WMC shares, while they are off their highs.

Other major broking firms, including Deutsche Morgan Grenfell and JB Were, have also downgraded their outlook for the company.

WMC, which is in the throes of changing its balance date from June to December, said last Friday that the effect of falling commodity prices on its earnings had not been offset by the declining dollar because of hedging contracts.

As a result, December-half earnings - to be announced on February 5 - were expected to be below the $100.7 million of the previous corresponding period.

WMC has been battered by commodity price falls caused by the Asian financial crisis with its shares falling 42 per cent from $8.74 in June.

The shares surged 55c to $5.15 on Monday but yesterday fell 9c to $5.06.

"There's not an enormous amount of upside from here but the stock is good value in a long-term sense," said Macquarie Equities analyst, Mr Will Corkill.

"I think the alumina market looks quite firm."

Last October, broking firms on average were predicting WMC would earn $398 million in the 12 months to June 1998. But since then, plummeting commodity prices have led to repeated downgrades and many brokers have now slashed their forecasts by up to 40 per cent.

Since October, the price of nickel has fallen 21 per cent from $US320 a pound to $US250, while copper has fallen 27 per cent from US$1.05 a pound to US77c.

WMC's shares are now trading below most analysts' net present value (future cashflows discounted for inflation).