broker forecasts

I've been in ETC since 22c (two weeks) and have enjoyed the ride so far. I bought prior to the announcement regarding the start of printing for the Malaysian contract simply because I saw little downside risk.

The key question now is how high is this thing going to go, and in what time frame.

The first thing to note is that, as of last week, the company's CFO was still reiterating to brokers and institutional investors that it is going to hit its profit projection this year ($48mill) and that it was comfortable with the Lodge partners forecast for 2010.

David Haselhurst (Eureka report) is forecasting 55c as a short term price target, which represents a PE of 5 based on the projected 09 earnings.

Lodge partners, on the other hand, value ETC on a forward PE of 8 or 95c per share. That's a short term price target of 95c.

However, Lodge Partners are also forecasting 2010 NPAT for ETC of $100mill. Assuming a PE of 8, that suggests a fully diluted price target of $1.83.

If ETC was based in Australia with Australian and EU or US customers, then I think it would likely trade on a forward PE of around 11 or 12. But, since ETC is based in Malaysia, with predominantly Asian customers (although it is bidding for a large UK govt contract), I think a PE of 8 is probably justified.

Summing up:
As long as ETC management maintain their $48mill FY09 profit forecast, I see the stock continuing to steadily climb to around 75c over the next 3-4 months (which still has the stock trading on a tiny PE). And if the company actually hits (or gets close to) $48mill NPAT, and gives a positive outlook for 2010, then I see ETC soaring above $1 on the day the profit figures are released. Further, if the company forecasts a 2010 NPAT in the region of $100mill (as Lodge partners expect), then I think this stock could hit $1.80 this calendar year (=a PE of 8).

Obviously, these predictions are conditional on the wider market continuing to slowly recover (or at least not tanking further).

Given the huge upside potential for ETC and the trading volumes the stock is attracting, I wouldn't be surprised to see other brokers initiate coverage of ETC in the short term. It will interesting to see if a consensus price target emerges.