Shanghai Petrochem Branches Out
Shanghai Petrochemical's (SHI) exposure to the fast-expanding Chinese economy and strong petrochemical product demand make us confident of strong volume growth. However, future revocation of government price controls, higher crude oil prices and increased competition are some of the major concerns for the company.
Thus, we rate the stock a Hold with a six-month target price of $42.00. This is 9.7x our 2008 EPADS estimate.
Our outlook for the Chemical and Fertilizer industry is positive. Investors should over-weight chemical stocks now. The group is likely to outperform the S&P in the next six months. We should see earnings that are in-line expectations.
We view the current expansion of SHI's refining capacity as a clever move, which will lower input costs. The company recently entered into a joint venture with Kuwait Petroleum Company, to build an oil refinery and also plans to develop the Yadavaran oil field in Iran. Shanghai Petrochemical also has a sound cash position.
Initiating on Interactive Brokers
We are initiating coverage on the shares of Interactive Brokers Group, Inc. (IBKR) with a Hold rating. IBKR is one of the oldest automated global electronic market makers and brokers.
The company reported record results during the first quarter. These results were supported by extraordinary market volatility, resulting in higher volumes and wider spreads. Though the company's fundamentals are very strong, given the current negative sentiment for the group as a whole, we will look for a more opportune time to upgrade the recommendation.
Based on these results, we are installing our FY08 and FY09 earnings estimates at $2.12 per share and $2.34 per share, respectively. IBKR is currently trading at 15.7 times the consensus estimate for FY 2008, an 11% premium to 14.2 times for the peer group median. Our six-month target price of $34.00 per share equates to about 16.0 times our forward estimate for 2008. With no dividend to supplement, this target price implies a 4.1% expected total return over the same period.
Radio One Finds New Avenues
Radio One, Inc. (ROIAK), the seventh-largest radio broadcasting company in the U.S., is diversifying into businesses outside its core radio operations, which in the longer-term, could offset the effects of radio's secular decline.
Together with Comcast Corporation (CMCSA ), the company started an African-American cable TV network, TV One, which is expected to be cash-flow positive over the next 12 months. It is also investing in online content and an Internet portal, and recently acquired CCI, a social networking company.
