WW’s shares set for boost

DOLMEN Stockbrokers believe out-of-favour Waterford Wedgwood shares have a potential 25% upside over the next 12 months.

In a note to clients yesterday Dolmen analyst Stuart Draper said he can see Waterford Wedgwood shares climb by 25% to 40 cent a share over the next year.

Mr Draper argues that with current US economic data indicating that a meaningful recovery in retail sales is starting to take hold, as a result, Waterford Wedgwood’s Christmas sales season has the potential to be quite robust giving a significant boost to WW’s current year earnings.

“Following 10% weaker year on year sales in April and May, which improved to an overall 3% group decline in June and July, WW’s US sales showed 9% growth in July, confirming that a meaningful recovery has now started,” he said.

Mr Draper points out that Waterford Wedgwood has recently announced the rationalisation of 235 jobs at its Irish plants which, following on from the relocation of 1,100 jobs at its Johnson Brothers earthenware manufacturing to China and a further 1,400 job cuts as part of its November, 2001, rationalisation programme, leaves the company well positioned to profit as revenues start to recover.

“The out-sourcing of the Johnson Brothers manufacturing alone to China is forecast to generate cost savings of €28.7m per annum,” he outlined.

Mr Draper says the other potential major catalyst for the share price between now and Christmas is the possible renegotiation of banking facilities, which would eliminate the continued equity issuance worries. “The equity market rally of recent months will also have reduced the company’s pension deficit,” he said.

At the beginning of the year Waterford Wedgwood’s combined ‘point in time’ deficit was close to €113m on its defined benefit pension schemes.

Mr Draper said Dolmen’s 12 month price target of 0.40 is based on 9x forward earnings per share of 4.5c.

“Even assuming a 50% cut in the interim dividend, in line with the reduction in last year’s final dividend, investors will get paid a yield of 4.7% on the current share price for waiting for this valuation gap to close.”