Melbourne Age 29/4/2002., page-3

Research report (full) Powerlan dated 29/4/2002 Ga http://www.ozestock.com.au/MessageView.asp?PostID=117189&Symbol=PWR
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Here's the full article, obviously over a word limit STOCKSAuthor: RON MARNEYDate: 29/04/2002
Words: 1200Publication: The AgeSection: Money
Page: 13
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HOT STOCK
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WHEN PowerLan delivered its interim result to December 31, 2001, there were some analysts prepared to say this IT solutions and services stock had turned the corner. While the profit number was down to $6.07 million, compared with $7.77 million in the previous corresponding period, the fact that the company announced a strategy to either quit or restructure some of its less profitable operations was taken as a positive.
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That was on March 13. On that day the share price closed at 31 cents. About six weeks later, the market simply has not "bought" the PowerLan story. It is now trading at about 20 cents - a historical low. It is a far cry from its listing price of $1 in September, 1999 and even further from its high of nearly $3 on the cusp of the hightech crash in April, 2000.
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In those heady days, investor confidence in these stocks was such that they looked into a glass with just a few drops in the bottom and thought it was full. Now they can see a full glass and think it is empty. Such are the fickle fortunes of the market.
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In PowerLan's case, the glass is neither full nor empty.
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The market is still tough for many of its operations, particularly the lowmargin commodity IT products and services businesses - a problem PowerLan is addressing by selling two training businesses. It has also partly moved out of its leasing and finance operations.
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When announcing the results, the chief executive, Theo Baker, said the move out of lowmargin businesses was an integral part of the group's rationalisation.
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For analysts such as Deutsche Bank's David Leslie this was all positive. In a report dated the day the results were announced, he wrote: "PowerLan delivered a betterthan expected firsthalf result (to December 31, 2001). With the divestment of more noncore businesses expected, and greater emphasis on higher margin business solutions, we expect PowerLan to return to good growth from 2003."
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Deutsche Bank has upgraded its rating to "buy".
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Mr Leslie valued the shares at 72 cents each. At the 31 cents closing price on March 13, that represented a premium of 132 per cent. At a trading price of about 20 cents, that premium blows out to 260 per cent. If Mr Leslie is right, PowerLan offers enormous value.
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What the Deutsche Bank analyst is asking investors to do is look beyond the 2002 result - it predicts $12.3 million for the full year to June 30, 2002 - and examine the June 2003 result that he estimates at $16.4 million.
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On that number PowerLan has earnings per share of 5.3 cents that translates into a priceearnings multiple of less than four times based on a 20cent share price. If the company does achieve this result - and this remains a big ``if" - that will be a ridiculously low earnings multiple. The cream on the cake could be a dividend of 2.5 cents in 2003.
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Deutsche Bank has an important caveat on its ``buy" recommendation. It questions PowerLan's decision to buy the remaining 62 per cent of the telco software subsidiary Clarity that it does not own, pointing out that the company's recent $5.9 million loss in the first half of 2002 "provided ample indications of the risks involved". Like Deutsche, this column believes, the Clarity issue notwithstanding, that PowerLan is worth a punt at these prices. Buy.
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POWERLAN - RECOMMENDATION: BUY
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ABOUT THE COMPANY
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PWR:$0.20
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Sector: Computer/office services
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Business: Information technology/telecommunication services
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Market cap: $80.43 million
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Final dividend (Jun 30, 01)*: Nil
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Yield: n/a - At April 26
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BULLS
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Pacific Hydro (PHY, $3.55) - BUY
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Howard Taylor, a senior private client adviser with Tolhurst Noall, says Pacific Hydro is well placed to consolidate its position as a leading renewable-energy producer. Earnings growth this financial year should be about 16.9 per cent, he says, and the company's long-term prospects also look promising. Pacific Hydro runs the Ord River hydro scheme and several wind farms. "The current weakness in the stock price provides an excellent opportunity to buy a growth stock at a value price," Mr Taylor says. ``Buy."
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Globe International (GLB, $2.05) - BUY
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Michael Heffernan, an analyst and investment adviser with FW Holst & Co, says Globe, which listed in May last year, has good underlying sharemarket fundamentals. ``Globe sells youth-based leisure and surf wear in Australia and overseas and its expected profit growth over the course of the next few years is very strong," Mr Heffernan says. "Buy."
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Ten Network (TEN, $2.20) - BUY
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Anthony Walsh, a financial consultant with Salomon Smith Barney Private (SSBP), rates the Ten Network a medium-risk investment. Ratings and revenue momentum continue to accelerate, he says, and earnings are heavily leveraged to advertising-revenue share gains. ``We have increased our valuation from $2.17 to $2.50 per share and have upgraded our rating from 'neutral' to 'outperform'," Mr Walsh says.
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BEARS
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Sonic Healthcare (SHL, $5.26) - SELL
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Howard Taylor, a senior private client adviser with Tolhurst Noall, says the growth in Sonic Healthcare's core pathology business may have come to an end for the time being. The loss of contracts such as Australian Hospital Care have contributed to the weakening outlook, he says, and the high cost of growing the New South Wales business has contributed to declining margins. ``There is no obvious means of growing market share without considerable cost," Mr Taylor says.``There's better value elsewhere. Sell."
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Adelaide Brighton Cement (ABC, $0.84) - TAKE PROFITS
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Michael Heffernan, an analyst and investment adviser with FW Holst & Co, says Adelaide Brighton Cement has enjoyed strong profit recovery over the past two years and its share price has almost doubled in 12 months. "In view of an expected slowdown in the residential-building sector it may be appropriate to take some profits on this stock," he says.
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Seven Network (SEV, $6.40) - NEUTRAL
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Anthony Walsh, a financial consultant with Salomon Smith Barney Private (SSBP), rates the Seven Network a high-risk investment. ``Ratings volatility has reached unprecedented levels this season and we believe that Seven's ratings and revenue share are under pressure due to the strong performance of Ten," says Mr Walsh. ``As a result we've lowered our valuation by around 7 per cent to $7.02 a share."
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WILDCARD
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Giralia Resources (GIR, $0.17) - SELL
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With penny dreadfuls it often pays to take a hard look at how the shares have performed in the long term. Giralia Resources, a mining explorer with interests in the Western Australian Ashburton gold province
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(Commnets ---BK) Gann retracement 15.2--PWR
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The article mentions Clarity----as stated on the thread CLA was waiting to collect a major receivable that did not fall within the previous quarter, the latest commitments to test first entity (see thread) shows an increase in cash of 454.000----the management slashed costs from 3 mill per month down to 1.5 mill per month and have met targets----the entity has forecast that Clarity will be cash flow positive by June 2002----it is progressing in line with the above.
Meanwhile sales teams have been deployed in North America--further Clarity is proceeding in North Asia and has won a contract there and also with Western Power in Western Australia. (with the newspaper story--Deutsch had a sell at 42c valuing at 35c---ING---selling beginning to ease now---hence the relief of selling pressure---for those who have memories at H/C longer than three days)
Cheers,---Steve.