Daily ShareChat: Nuplex Industries

Morningstar has raised its forecast earnings for Nuplex Industries following indications from management that its major markets have stabilised after falling significantly since October/November last year.

The researcher is now expecting Nuplex's net profit for the year ending June 30 will be $24.4 million, up from its previous $19 million forecast but down from the $53.4 million net profit Nuplex reported in 2008. Morningstar expects a $36 million net profit in 2010.

The company's raw materials prices have fallen on weak demand and soft crude oil prices and, combined with "disciplined behaviour" shown by Nuplex's competitors, should mean gross margins will improve or at least remain stable for the foreseeable future, it says.

Petrochemicals account for about 80% of Nuplex's total cost of sales and excess capacity is putting downward pressure on prices and an alliance it has formed with other resins producers to procure raw materials has enhanced its bargaining power with suppliers, Morningstar says.

It says there is also good scope for margin improvement from rationalisation and restructuring. "These initiatives should lead to strong earnings momentum over the next two years."

Following Nuplex's $160 million rights issue, it values the shares at 62 cents compared with Tuesday's close at 43 cents.

BROKER CALL:  Morningstar rate Nuplex (NZX: NPX ) as ACCUMULATE.

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