Feltex’s forecast hammers its shares

Feltex has pulled the rug out from under investors by issuing a profit downgrade, prompting a one-third plunge in the company's share price.

The company said a tougher sales environment here and across the Tasman meant the full-year net profit could be as much as $9 million below previous forecasts.

Net profit after tax is now seen at $15 million-$16 million for the year to June 30. This is $8 million-$9 million less than previously forecast.

From Thursday's closing price of $1.50, Feltex shares fell to 98c on the news before recovering to end the session at $1.04 - a drop of 46c.

Forsyth Barr Frater Williams broker Richard Burton said Feltex's statement had caught the market by surprise.

He said there was no indication of a downturn at a briefing for analysts just over a month ago. Feltex was a volume business and when these came off, as they had done, then it quickly came off the bottom line.

Alongside the tougher sales environment, Feltex cited several other challenges:

* Commercial retailers and contractors have experienced a delay in projects due to the shortage of laying contractors.

* Key residential retailers had advised Feltex of low store traffic in the first quarter of the calendar year, which reduced their confidence for the remainder of the financial year.

* Increased price competition in the market, primarily due to synthetic imports being higher than projected (due to the strength of the Australian dollar versus the United States dollar), and the general slowdown in the Australian residential market.

* This competition has affected Feltex's ability to fully pass on additional first-quarter synthetic raw material cost increases. Synthetic-based raw material costs are expected to continue to move up and Feltex said its ability to recoup cost increases would depend on competitive pressures.

* Rising synthetic imports and the slowing Australian residential market had stopped Feltex reaching its projected market share increases.

* The ongoing strength of the dollar, which remains above projections, had continued to adversely affect the company's performance.

Feltex said it would advise the sharebroker organising its interim dividend reinvestment plan not to buy the required additional shares for participating shareholders until the market had absorbed the news.

The dividend is due on April 8.

Feltex shares were issued at $1.70 last June and first listed at $1.62.

In its prospectus, Feltex forecast a net profit of $25.8 million for 2004-05 year on sales of $348.1 million.

The sales forecast was downgraded from $310 million-$315 million when the interim accounts were released - and is now seen at between $295 million and $305 million.

Fellow carpet maker Cavalier also took a hit, losing 15c to $3.65 in the first hour of trading on the sharemarket yesterday but recovered to close at $3.73, down 7c.