Morningstr Equities Report

DuluxGroup Limited DLX| Maintenance and improvement markets show resiliency in 1H13

Morningstar Recommendation: Reduce

Nathan Zaia, Morningstar Analyst

Dulux's first half fiscal 2013 result is muddled by a four month contribution of Alesco. While the 8.9% increase in NPAT to AUD 42.9 million is generally in line with our expectations, Alesco missed expectations. While mildly disappointing, it's still early days in the integration and the Australian housing market isn't exactly firing. The highlight of the result was the key paint businesses, over 70% of group EBIT, gaining market share and lifting margins. Stablising Selleys and Yates earnings was also encouraging after the second half 2012 result was battered by a shift to lower priced low margin products. In light of recent subdued commentary from Boral and Adelaide Brighton, the result reinforces the appeal of being leveraged to the less cyclical maintenance and home improvement sectors, 60% of EBIT. Slightly lower first half earnings and a less favorable outlook for Alesco's new housing exposed businesses sees our fiscal 2013 NPAT forecast reduced from AUD 100 million to AUD 91 million, broadly in line with management guidance around consensus of AUD 89 million. Changes to our long-term forecasts are more modest, meaning no change to our fair value estimate of AUD 3.50.

Incitec Pivot Limited IPL| First half in line, but problems at Moranbah lower full year outlook

Morningstar Recommendation: Accumulate
Peter Rae, Morningstar Analyst
First half fiscal 2013 adjusted net profit after tax (NPAT) fell 10% to AUD 110 million and was exactly in line with our forecast. As we expected, earnings were hurt by the strong Australian dollar and lower fertiliser prices. Partly offsetting this, fertiliser distribution margins improved after the mistiming of purchases in first half fiscal 2012 and the Moranbah ammonium nitrate plant continued to ramp up production. But disappointingly Moranbah has experienced some problems and ramp up will now be slower. For this reason we reduce our fiscal 2013 NPAT forecast 7% and 2014 by 4%. With our medium-term forecasts intact our fair value estimate is unchanged at AUD 3.60.

SkyCity Entertainment Group Limited SKC, SKC-NZ| The Convention Centre deal is finally announced, project likely to be value accretive for Sky City

Morningstar Recommendation: Hold
Nachi Moghe, Morningstar Analyst
The long-awaited Convention Centre project has finally seen the light of day. Sky City Entertainment Group (Sky City) signed a Heads of Agreement with the New Zealand Government to design, build and operate the New Zealand International Convention Centre (NZICC). The total cost of NZICC including capitalized interest will be around NZD 400 million to NZD450 million. As a result the company will spend close to NZD 850 million to NZD 900 million (including capitalized interest) over the next 3-4 years in expanding Adelaide and building the NZICC, which is significant and unprecedented in the history of Sky City. At this stage we are not changing our fair value and earnings estimates. However we will be reviewing our projections and valuation over the next few weeks following a detailed assessment of the project. All things being equal, the NZICC and the consequent regulatory relief will enhance the competitive position of Sky City. Our narrow moat rating on the stock remains intact.

AGL Energy - Downgrade due to price change.

Fortescue Metals - Upgrade due to price change.

Newcrest Mining - Upgrade due to price change.

Perilya - Downgrade due to price change

Whitehaven Coal - Downgrade due to price change

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