Australian Industrials PE Re-Ratings

Submitted by Craig Strzelecki on 1 May, 2007 - 19:02

Sharemarket analyst, UBS has provided data about Australian Industrials PE Re-Ratings. Industrial ex Financials Sharply Re-Rated Recently: In the last 9 months the industrial P/E expansion has been broad based (with very few absolute de-ratings) even in cases of poor operational performance. A combination of excess liquidity, M&A activity and some very strong profit performances has driven valuations higher across the majority of the industrial market. M&A The Primary Reason: they have divided industrial P/E re-ratings into 4 thematic groups: 1) M&A targets (actual and perceived ) 2) Market Darlings 3) Turnaround Situations and 4) Corporate Restructuring situations. M&A activity and speculation of activity appears to have been the most significant factor behind the re-rating (accounting for around 50% of the re-rating). Industrials Looking Stretched From A Valuation Perspective: The analyst believes that the industrial market is stretched from a valuation perspective and are underweight, preferring resources and (non property) financials. With value hard to come by and a degree of (currency-driven) earnings risk emerging, our holdings within the industrials are concentrated on what we consider quality stocks with strong earnings outlooks.