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Ford Equity International Rating and Forecast Report
Ford Equity International Research Reports cover 60 countries with over 30,000 stocks traded on international exchanges. A proprietary quantitative system compares each company to its peers on proven measures of business value, growth characteristics, and investor behavior. Ford's three recommendation ratings buy, hold and sell, represent each stock’s return potential relative to its own country market.. The rating reports which are generated each week, include the fundamental details behind...
Update: Stabilisation a welcome end to a difficult year
Xaar’s trading update reported that trading in the key ceramics segment has stabilised in recent months. Given the deterioration witnessed over Q2/Q3, this comes as a welcome end to a difficult year. The rating does not look demanding given the growth potential, IP and cash generation. Evidence of a more prolonged stabilisation in ceramics and customer progress with direct-to-shape and Thin Film are the key catalysts for a more sustainable share price recovery.
Update: China hits the buffers
It is now becoming apparent that demand in 2012 and 2013 was significantly inflated by overheated demand in the Chinese ceramics market. A prolonged 12- to 18-month period of lower demand is now expected while the supply/demand situation normalises. With a significant proportion of sales coming from China and an operationally geared model, this results in 21% and 44% downgrades to our FY14 and FY15 EPS estimates respectively.
Outlook: Transition scenarios
A slowdown in demand from the Chinese ceramic tile production market has prompted a 24% reduction to our FY14 earnings estimates and 23% for FY15. The transitional phase of the business clouds earnings visibility but a scenario analysis suggests the market is taking a bearish view on the prospects from here. Stability in ceramics needs to be demonstrated, but we feel the structural growth story is in danger of being neglected.
Update: Resetting expectations to more sustainable level
Price reductions in ceramics and slower than expected uptake in packaging put a severe dent in our estimates. However, we believe fears that this marks a downturn in the company’s prospects are overdone and that the company is resetting prices and margin expectations to a more sustainable level following a period of exceptional competitive and financial performance. With a strong market position and a broadening portfolio of structural growth opportunities, prospects remain good.
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