Credit Suisse reduced the stock to neutral from outperform and lowered its target price to $3.90 from $3.95. "Reflecting pervasive weakness in end-markets, Boral’s first-quarter trading update confirms not only its challenges, but those across the sector. Operational earnings in 2013 will undershoot previous bearish expectations, while cost cut initiatives remain the key profit driver”, it said.
"The consensus view is for an imminent recovery in Australian housing post recent policy initiatives. But industry feedback suggests we are yet to see any improvement. A lack of consumer confidence, bank valuations falling short, a deteriorating labour market and household deleveraging are the key issues. Therefore we remain cautious. The unwinding of weather delayed activity also looks to have run its course,” Credit Suisse noted.
Also, in a research note from Nomura, the group downgraded Boral to a reduce rating and lowered its target price to $3.25. Nomura noted that: "with an implied flat first-half 2013 net profit following today’s trading update and full year consensus at $138 million, we view the second-half 2013 earnings requirement of $104 million as daunting, despite a welcome boost from an ongoing US recovery that we remain firm believers of.
"Furthermore, with a 'taut' balance sheet and a new chief executive, significant cost cutting and 'kitchen sinking' should not be discounted as 2013 NPAT may well mark the bottom of the Boral earnings cycle at $104 million NPAT. This expectation teases investors into looking past 2013 and into 2014, where US housing recovery makes a marked difference. Our trouble is that Australian housing and Australian construction look set for a struggle ultimately finding its roots in a stubbornly high Australian dollar,” Nomura said.
Elsewhere, SMS Management & Technology was downgraded to neutral from outperform by Credit Suisse. The broker also reduced its target price by more than 20 per cent to $5.20.
"At its recent AGM, management guided to first-half 2013 NPAT of between $12.5 million and $14 million, with the midpoint of $13.3 million ~13 per cent below the first half of 2012,” Credit Suisse said. There has been a rapid deterioration in the outlook too, with only $81 million in new contracts signed in the first quarter of 2013, which is materially below the prior corresponding period of $102 million.
Credit Suisse noted that with the areas that drove 2013 growth now weakening and material decline in Cathay Pacific demand (~70-80 per cent of Asia revenue in 2012) we expect a substantial decline in sales, utilisation and margins in 2013.