ABB

Macquarie Research initiates 'underperformer' rating on ABB
10 Sep, 2008

ABB India
cmp: Rs 893.40
target price: Rs 728

Macquarie Research has initiated coverage on ABB India with an ‘underperformer’ rating saying ABB has traded at a significant premium to peers in the power sector equipment space.

“We expect growth to moderate and multiples to come off,” said Macquarie in a note to its clients. Macquarie expects the company’s growth to mod-erate to 26% CAGR over CY08-10.

“We expect ABB’s growth to come in line with BHEL’s (proxy to generation sector investment) projected growth. Our projected topline growth over CY08-10 is 26%, against 42% over CY05-07,” the note said. According to Macquarie, ABB has built-in price escalation clauses in its contracts and has also hedged key raw materials such as copper.

“We expect margins to remain stable on pass through clauses, earnings growth around 27%,” the note added.


Wait for more signals before turning positive
28 Jul, 2008,

At the recent low of 12514 points, the Sensex has tested the 12800-12000-pts support zone and has since then attempted a corrective rally. During the past trend phases in the Sensex, a monthly moving average convergence/divergence (MACD) cross-down below its trigger line, have, typically, led to a significant value erosion, with the corrective phase lasting, at least, for a year.

Therefore, immediate rallies would be interpreted as corrective in nature until the medium-term technical parameters turn positive. The recent upmove in the Sensex since the low of 12514 pts has been very sharp. The upside gap of July 23, 2008 had created a bullish ‘Island Reversal Gap’ on the daily charts between 14510 pts and 14519 pts.

Normally, the implications of this on the medium-term outlook would be very positive, especially since the “Island” comprised of 22 trading sessions. When a stock indicates an uptrend, trades above the gap which occurs, then gaps back down and trades below the initial price, an island reversal has occurred.

However, the Sensex has since run into a strong resistance zone between 15026 pts and 15390 pts. The monthly mid-point of June 2008 is at 15026 pts. The 50% retracement level of the fall from the May 2008 peak (17735 pts) is at 15124 pts. The positive implications of the bullish “Island Reversal Gap” would thus get negated if the Sensex has a daily close below 14104 pts (the close on July 22, 2008). The Sensex is then expected to have an initial downside of 13513 pts, the 61.8% Fibonacci retracement level of the recent rise from 12514 pts to 15130 pts.

If the bearish “Island reversal gap” of 14484-14568 pts is immediately filled and the Sensex manages to decisively overhaul the resistances between 15130 pts and 15390 pts, the ongoing upmove would continue. The Sensex may then test higher levels between 16618 pts and 16860 pts.

The 78.6% Fibonacci retracement level of the fall from the May 2008 peak is at 16618 pts while 16860 pts is the 50% retracement level of the entire fall from the January 2008 peak. Hence, one would await further confirmation before turning positive on the medium-term outlook.