CSR Limited

The 149th annual general meeting of CSR was a joyous occasion. Investors were greeted with the news that pre-tax profit for the current year is forecast to be 15% above last year, thanks to an overhead cost reduction program at head office and stronger sugar prices. Unlike its headline-making competitor, James Hardie, CSR already has in place a significant provision for further asbestos liabilities, including a substantial prudential margin. That said, as the James Hardie experience shows, these liabilities have a tendency to blow out and we have no idea whether the amount set aside is enough to cover all contingencies. With the stock shooting up 19% since our last review in issue 153/Jun 04 (Hold for the Upside—$1.92), any further upside is rapidly disappearing. Given that we believe the odds of this stock producing above-average returns over the long term are pretty low, now is a reasonable time to SELL, although the shares may well continue to rise in the short term.