Performance yet to reach expectations

The appointment of David Robb as Iluka chief executive last August may have been applauded by the investment community, but the positive reception for the man has not translated into support for the stock.

Most analysts are telling investors to sell the stock or hold on for the ride, rather than buy.

Many analysts also seem to have lost interest in the company choosing to update numbers on key financial reporting dates rather than tracking the company and its performance more frequently.

That is largely because the view among analyst is that, despite Mr Robb’s appointment, the short-term outlook for Iluka is anything but positive.

“It will be difficult for Iluka to outperform, and whilst it is possible to see some real improvements, this will only be reflected in 2008,” one analyst said.

Last year’s earnings were disappointing and a rising Australian dollar could erase nearly half of its forecast $90 million to $100 million profit this year.

In a research note compiled by an analyst at Macquarie Financial Services after the company’s full-year result earlier in the year, analysts said the company’s shares would continue to underperform.

“The short-term outlook for Iluka is unappealing,” the analyst said.

The analyst said currency movements remained a huge threat to profitability and the market could expect “currency-driven” downgrades in coming months.

“The stock is now trading on historically expensive one- and two-year-forward earnings multiples. Declining grades and assemblages in Western Australia and the US are placing bottom-up pressure on operating margins, gearing levels are elevated and forecast to rise further…and there are significant upcoming capital calls for development of the northern Murray Basin and Eucla Basin projects.”

In the past three years, Iluka’s shares have been treading water compared with the market majors, increasing from $4.39 to $5.83, or 32 per cent, albeit peaking at $9.05 nearly two years ago.

The share price has fallen 13.4 per cent during the past year.

In contrast, Iluka’s mining peers have helped push the S&P-ASX 200 index up 25 per cent during the past 12 months.

Mr Robb said there had been recent investor interest with new additions to its shareholder register.

But he said it would take time for the company to shake-off the disappointments of the past.

“We have clearly got a period of time where we will definitely be head down and working very hard on the things we can fix and improve,” Mr Robb said.

“Hopefully as we tick those off for investors, and they see that we are progressively tackling them, then the sentiment around the company, and view of it as an investment proposition will be more positive.

“There’s a lot of interest in the story. But it’s fair to say there is a fair degree of caution and people waiting and watching for a little bit.”