Hartleys changes ratings for Perth firms

27/10/2008 - 13:35

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A handful of Perth companies, Macmahon Holdings Ltd, Monadelphous Group Ltd and Nomad Building Solutions Ltd, have had their recommendations changed by analysts at brokerage Hartleys.

Hartleys changes ratings for Perth firms

A handful of Perth companies, Macmahon Holdings Ltd, Monadelphous Group Ltd and Nomad Building Solutions Ltd, have had their recommendations changed by analysts at brokerage Hartleys.

Following a downgrade earlier this month, Hartleys has now upgraded its recommendation for Macmahon from Hold to Speculative Buy, as the stock's valuation pares back in line with its peers.

On October 6, the brokerage preferred a basket of cheaper stocks compared to Macmahon which was trading at a 32 per cent premium to its competitors.

However since then, Macmahon's share price has fallen from $1.445 to today's last traded price of 78.5 cents, in line with peers on a fiscal 2009 price to earnings ratio.

".. there is substantial amount of work for mining service companies over the next few years, and MAH [Macmahon] should benefit," Hartleys' analysts said.

"Note though, MAH is Speculative Buy (and not a Buy) because it does not have the same asset backing support of many other competitors we cover."

Macmahon's 12-month price target is $1.26, down from $1.37.

Meanwhile, engineering company Monadelphous has been downgraded to from Accumulate to Reduce due to relative valuation.

Hartleys analysts say the stock is trading at around a 50 per cent premium to the 2009 financial year price to earnings ratio of its peers

"In an equity market with plenty of opportunities, MND [Monadelphous] could struggle to see further multiple expansion," analysts at Hartleys said.

However, analysts added that the company possesses all the qualities to get through the cyclical downturn but the key risk lies in the short-term nature of its contracts, which are around nine to 12 months.

Hartleys said at this stage, it estimates that 65 per cent of the fiscal 2009 revenue is secured, and in order for Monadelphous' share price to outperform in the medium term, the company win more work and deliver above average results.

Analysts have lowered their forecast for fiscal 2009 net profit by 3 per cent to $73.9 million and the 2010 financial year net profit has been lowered by 8 per cent to $82.2 million.

Monadelphous' 12-month price target is set at $8.35, down from $10.83. Its last traded price was $8.09.

Meantime homes and buildings developer Nomad has had its recommendation further downgraded by Hartleys, this time from Speculative Buy to Hold.

The broker firm first downgraded the stock in early September due to concerns over the company's share price if its 2010 order book was not built up.

"Although the order book has improved since then, unfortunately the macro and market risks have also increased substantially," Hartleys analysts said in a note.

"We are afraid the market will focus more on the downside risks to earnings and hence we believe the share price is likely to continue to be subdued given our view that the risk/reward profile is evenly split between upside performance and downside risk."

"We believe the greatest risk to NOD [Nomad] is building an FY10 order book.

The analysts estimate that Nomad requires contract wins to fill 80 per cent of the FY10 revenue estimates.

Nomad has a 12-month price target of 93c, down from $1.84. It last traded at 67.5c at 15:39 AEDT.

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