23/10/2008 - 14:03

Hartleys downgrades Clough rating

23/10/2008 - 14:03

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Analysts at brokerage Hartleys have downgraded its recommendation for Perth-based engineering firm Clough Ltd, saying the stock had one too many risks.

Hartleys downgrades Clough rating

Analysts at brokerage Hartleys have downgraded its recommendation for Perth-based engineering firm Clough Ltd, saying the stock had one too many risks.

The stock has been lowered from a previous Speculative Buy recommendation to Reduce.

The downgrade follows yesterday's announcement that Clough's 82 per cent owned Indonesian subsidiary, PT Petrosea, had been forced to suspend work on a coal mine project, which was seeking to raise further funds needed for completion.

The coal project's owner said its investment group led by Merrill Lynch had suspended further releases of funds until refinancing negotiations were concluded.

"This incident has raised further questions regarding the Company's risk exposure in Indonesia," analysts at Hartleys said.

"PT Petrosea currently contributes over 30% to Clough's revenues and earnings. Its existing contracts are highly concentrated in coal mining and with domestic clients.

"This raises our concerns regarding the vulnerability of these clients to the global credit issues and the falling coal prices."

The analysts added that while they believed the issue was outside of the company's control, they believe the repeated pattern of project losses - including the unresolved case of the G1 project in India - places Clough in the "high risk" category.

"Unfortunately, we believe this will delay investors' confidence in CLO's turnaround prospects just as it was beginning to win some very good contracts in the oil and gas industry," the analysts said.

The analysts have forecast a 12 month price target for Clough of 33 cents per share.

Clough's share price slumped 29 per cent or 14c to close at 34.5c.

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