Brokers Talking Up Csl Again

Sydney Morning Herald

Tuesday December 3, 2002

Edited by Mark Todd

The blood processor is getting a little more colour back in its shares.

The rerating of blood processing group CSL shows no sign of relenting. The share price surged 7 per cent yesterday, bringing its gain over the past six weeks to 42 per cent.

Credit Suisse First Boston provided another dose of optimism, issuing research suggesting that the price of intravenous immoglobulin (IVIG) may have stabilised.

The price has fallen sharply in the past year as blood donations increased and created a surplus. That led many analysts to downgrade their earnings forecasts for CSL and at one stage the company itself warned the future looked uncertain, all of which sent the share price to a three-year low.

CSFB also pointed to the recent success of CSL's cervical cancer vaccine (still in trials) and argued that its research and development portfolio differentiated the group from classic ``commodity" companies one of the oft-cited reasons for the share price decline.

Another development had been the submission by subsidiary ZLB for a biologics licence for a product that could prevent haemolytic disease in newborns. CSL hopes to launch it in the US in 2004. CSFB thinks the chances of its commercialisation are 85 per cent.

The broker still expects first half earnings to be lower than last time, but growth should resume in the second half.

``We consider blue sky is faintly re-emerging in sentiment to this stock," CFSB said.

CSL is holding an R&D briefing next week. The shares rose $1.74 to $23.13.

AMP in the value bin

A new chief executive, cost cutting and a new corporate strategy is the sort of cocktail that generally excites traders. AMP is therefore pretty closely watched by those looking for value buys.

Tomorrow's much-anticipated strategy briefing will be important in keeping the early momentum going for new boy Andrew Mohl. It should also clarify the strategy AMP intends to follow to right its troubled UK Financial Services businesses.

Morgan Stanley said in a note late last week that it thought the AMP share price could well rise 30 per cent in the next year to its price target of $16.53.

Morgan Stanley's view even accounts for the possibility that the UK's FTSE index will continue its shuddering decline. The FTSE has become arguably the key variable in the stock price because of the impact it has on investment returns and client sentiment.

The broker says AMP's economic solvency would remain intact even if the FTSE drops as low as 2630, compared with the level of 4169.4 before last night's opening.

``Even if one takes the view that AMP's troublesome UK business will not provide another pound of profit from either the existing book or any future new business sales, then the resultant 12-month target of $14.84 still provides 17 per cent from current levels," Morgan Stanley said.

``It is crucial to note that the bulk of the AMP's UK value resides within net assets, and that our work shows that this value is intact and should be distributable to shareholders over time."

Morgan Stanley expects the briefing will provide an update of the regulatory solvency position of Pearl (which AMP has said is not meeting regulatory capital requirements but will be by the end of the year), and how AMP will manage the so-called ``mature" and ``contemporary" lines of businesses in the UK.

The broker also expects AMP to book a net profit before last month's writedowns of $713 million for the year to December. Another variable is the bad publicity associated with not meeting regulatory requirements and the effect on individual policy sales through independent financial advisers.

Third quarter sales for the big UK life companies are down 10 per cent on the previous quarter, but AMP could well have felt more pain than its peers.

Calling all consumers

The main game at this time of year is consumer spending, the strength of which will have a large bearing on whether the trend to downgrade earnings continues.

Coles Myer, Harvey Norman and Woolworths have all flagged their expectations for a solid-to-strong festive season. But, any consumer reluctance to spend will really hurt.

Deutsche Bank's strategy team suggests that if earnings per share growth of 4.4 per cent in 2001-02 is any guide, there are probably more reductions in the offing for the 2002-03 target of 7.5 per cent.

Factors behind the downgrades include the global economic slowdown, softening business and consumer sentiment at home, a downturn in housing and the drought.

Worst-hit sectors so far include energy, down 11.1 per cent, healthcare, 8.3 per cent, materials, 6.1 per cent, and financials, 2.7 per cent.

Meanwhile, ABN Amro notes there's value yet in equity markets, and growth stocks look cheap after their recent hammering. In fact, growth stocks, which are sought after for their high rates of earnings expansion, are close to their cheapest levels collectively in seven years relative to bonds.

Upgrades to media earnings are the best ABN-Amro has seen in a decade while revisions to cyclical stock forecasts are also positive. But banks are going through their worst downgrade cycle in 10 years.