CLO 0.00% $1.46 clough limited

bottom fishing or catching falling knives?

  1. 9,081 Posts.
    Been looking at this one since its fall from grace.

    It's now around 46c and fell some 25% on one day.

    Profit warnings are punished severely in this market - in Clough's case, maybe too severely.

    The company has intimated that it will report a loss for the December half - losses could exceed $13 million (this was the profit CLO reported in the previous Dec. half)

    Why the losses? Two contracts appear to have been grossly underestimated and too high a price was paid during the tendering process.

    What needs to be kept in perspective is that there are around 60 or so contracts throughout the organisation in total but they are not factored in to the accounting process until they near completion.

    Provided there are no more "nasty surprises" ( and I guess it is here that one must take a calculated risk) total profit could come in at around $40 million or 10c a share.

    The December balance sheet should therefore be quite strong with the 4.5c dividend (30% franked) easily maintained as second half earnings are increased.

    Note the following comments from Huntley (SCG 13/11/02):

    "Financially the company has never been in better shape ..... (it has) ... a record order book ... For those with a longer term perspective, this is exactly the right time to start acquiring stock .... the share price has over reacted on fundamentals and will ultimately recover"

    While I hate catching falling knives ( and I am still bleeding a bit after picking up SGW on the way down at an average price of $2.77) this could well be an opportunity.

    And while, in normal circumstances, it is prudent to purchase stocks that are in clear uptrend, this is a unique market that is throwing up some oversold bargains. The trick is to know when to wade in.

    Clough at 46c looks okay to me; and SGW, I believe will head back up over $3.00 in time.

    I did better on AMP and MBL and got some close to their lows (but you can't win all of the time - or at least, I can't)

    I am also looking hard at Brambles but feel it has further to fall - I see BIL at sub- $4.00 down the track and would like to "bottom fish" for it once it hits those levels.

    These are just a couple of my late night musings (as I have seen the movies showing on TV tonight - "The Green Mile", as good as it was, is a bit too harrowing for a second viewing)
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