There’s a certain amount of highly irrational thinking going on in the market, aided by the active shorting of shares reporting bad news.
We’ve seen it time and time again: more recently with GPT, which brought much of its sell-off on its own head.
GPT shares fell another 11 cents yesterday to close at $1.62. It’s getting painful
Yesterday CSR was hammered after falling short of market expectations for 2009 earnings guidance. The shares dropped 16% at one stage before finishing down 14.7% at $1.97.
CSR hadn’t been below $2 since mid 2004. It was the biggest fall in more than 20 years.
The greedy folk in the market had been looking for 14%, CSR promised 5%, which given the problems in the Australian home building industry, especially in NSW where CSR is strong, is not bad going.
CSR had forecast fiscal 2009 EBIT to grow organically and as a result of the positive impact of its glass business.
That was after 2008 saw earnings down 35% on 2007, thanks in part to lower world raw sugar prices and unprecedented wet weather in Queensland.
Group EBIT was $386.3 million, down 5%.
Obviously quite a few analysts and others who should know better have been too optimistic about some companies and the performance of the industry/industries they operate in.
CSR is big in building products, and in sugar, aluminium and property development.
Of those sugar has improved because of the commodity boom but CSR is a price taker with Brazil, India and Thailand influencing prices, as well as the growing ethanol industry, also in Brazil.
Housing is weak: the building approvals figures make that clear, as do the housing finance figures this week for May which showed a sharper than expected fall in loans and the value of approvals.
Mr Maycock said group like-for-like earnings before interest and tax (EBIT) for fiscal 2009 was expected to be slightly above the previous year, as CSR benefits from a full year of earnings from its Viridian architectural glass business.
"Overall EBIT (IS) currently expected to increase more than five per cent," he told shareholders according to a slide pack released to the stock exchange.
Mr Maycock also forecast building products like-for-like earnings to be ahead of last year, but cautioned that market conditions remain uncertain.
Sugar EBIT is expected to be higher than last year, based on average weather conditions and current raw sugar prices.
Aluminium EBIT is projected to be slightly lower than last year.
But after hearing what many took as a ‘downgrade’ at the AGM in Sydney, CSR shares were sold off sharply, losing almost 14% in value as they plunged to $1.995 in afternoon trading yesterday.
CEO Gerry Maycock said outside the meeting that the decline in the share price recently had been part of an overall market trend.
"That is symptomatic of the general sentiment in the sharemarket where people are very sensitive to anything they perceive as bad news and there tends to be overreaction," he said.
Earlier, CSR shareholders had been told that it expects group earnings before interest and tax rise by more than five per cent in the financial year ending March 2009.
Chairman Ian Blackburne told the meeting that the company was frustrated with its recent share price performance.
"Clearly the past year has been a volatile period on world markets," he said.
"The on-going fall-out from the credit crunch in the US, together with a rapid increase in the price of oil and many resources, driven mainly by economic expansion in the developing world, has put stress on several economies including Australia.
"Investors are cautious and CSR, like most other companies in our market, has not been immune from the effects.
"Like you, we are also frustrated with the share price performance recently.
At least CSR is being upfront with the market and investors.
The CEO also said after the meeting that the company had found the Australian housing market has softened in the past three months.
"It is clear in the last three months there has been a softening in the housing market outlook," Mr Maycock said.
"NSW remains pretty soft, and we’re seeing some reduction in confidence in Queensland which had been one of the fast growing states."
"In Victoria, things are looking a little better but still some softening of sentiment."
Mr Maycock said lower consumer confidence levels coupled with high interest rates was hitting the housing market.
"Overall it is a combination of sentiment, interest rates, house prices remaining high and just general consumer confidence which seems to have taken the wind out of the sails of the market," he said.
The Chairman told the AGM that: "Some of our core business sectors, such as housing, continue to be challenging."
"We are seeing clear signs of interest rate stress and loss of consumer confidence.
"Having said that, we are focused on the medium term and I believe CSR is establishing a strong platform for growth to continue to deliver value for shareholders," he told the meeting.
The market wasn’t listening. For that blame hedge funds and others.
