2 big reasons why Minova's earnings are likely to drop

It must reach an EBIT around $192m.

According to the Commonwealth Bank of Australia, Minova earnings are likely to be significantly weaker. Here are the reasons why CBA thinks so:

Price pressure beyond what was originally anticipated by ORI would be necessary for it to maintain its market position is being experienced. This lack of discipline should not be overly surprising for an industry that is characterised by low barriers to entry, excess capacity and increasing levels of competition.

Restructuring costs are expected to weigh on FY13 earnings and offer little benefit. While we expect these costs to roll out in FY14, we remain unconvinced the benefits will not be competed away in light of our previous comments on this industry. Without a meaningful recovery in activity, a return to historical earnings levels appears difficult in the next 12‑24 months.

The $1.1b net asset value is certainly not justified by FY13’s $46m EBIT forecast. An 18% RONA suggests Minova should be generating EBIT closer to $192m.