Things start to brighten at Feltex

Fortunes might finally be on the rise for Feltex, analysts said yesterday after the carpet-maker released a positive trading update.

In a note to the NZX, Feltex forecast earnings before interest, tax, depreciation and amortisation - normalised by eliminating restructuring and one-off corporate costs - of between $20 million and $21 million for the year to June 30, compared with $33.2 million last year and $46.2 million in 2004.

The company had not previously forecast a figure for this financial year, but analysts said the update could be a sign that recent restructuring was starting to pay off.

Feltex shares rose 5c to close at 38c a share.

Analysts were generally positive but did not wish to be named - perhaps through wariness of a company which had suffered a run of bad news during the previous year or so.

However, Macquarie Equities investment director Arthur Lim said the update could mark a turning point.

"Good news for this company has been a long time coming," he said.

"We think it's quite good that it appears that they are starting to see some of the benefits from their restructuring programme."

Feltex said improved retailer confidence had reached the forward sales order book and profitability was improving, albeit to a level below that being sought.

"However, it has taken longer than anticipated to regain this confidence following the disruptive corporate activity surrounding the company from June 2005 to February 2006," the carpet-maker said.

In April and June last year, Feltex slashed that year's net profit forecast from $23.9 million to between $11.5 million and $12 million.

It launched a full review of operations. Chief executive Sam Magill and 46 senior executives were replaced, the Braybrook yarn plant in Melbourne was closed and woollen yarn manufacture in New Zealand consolidated.

The upheaval wiped 70 per cent off Feltex's share price.

Sales and margins for April and May this year "were encouraging and in line with our expectations in the current market conditions", it said.

Some analysts said the update could be evidence that restructuring efforts had started to take hold.

The recent weakness of the dollar had also helped profitability and non-core asset sales worth $25 million had been targeted - $6 million of which had been realised so far.

Feltex also said it was working closely with its bank to restore debt to historical servicing levels and was looking at the possibility of raising new equity to help further reduce debt.