SHARE OF THE WEEK: Cautious welcome for Vertex upgrade

Friday 30th April 2004

Since floating in July 2002 plastics packaging group Vertex has been something of a cause celebre or rather a bete noire of the listed sector.

The company downgraded its prospectus profit forecast three times within a year of listing so it was refreshing to see its recent upgrade.

It said it now expected its March 2004 year after-tax profit to be $4.8-5.0 million on ebit (earnings before interest and tax) of $9.4-9.7 million.

Analysts welcomed the positive news but were not sufficiently impressed to upgrade their recommendations.

ABN Amro retained its "hold" rating but lifted its 2004 net profit forecast to $4.9 million. It also increased its 2005 forecast 12.5% to $5.4 million, noting efficiencies as well as higher sales volumes had driven last year's strong finish.

The broker also lifted its forecast 2005 dividend, to 4.25c, on the assumption Vertex maintains its 25% payout policy.

However, ABN's target price of $1.60 remains below the market share price. The broker said that reflected "concerns about the lack of visible earnings growth potential and the company's exposure to movements in both raw materials prices and currencies."

Goldman Sachs JB Were lifted its 2004 forecast to $4.8 million and its discounted cash flow valuation to $1.57.

But it left its $4.8 million 2005 forecast unchanged, saying further evidence of improved performance was needed before it could change its recommendation.

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