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Weekly Recommendation, Target Price, Earnings Forecast Changes

Australia | Sep 15 2014

This story features BCI MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: BCI

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday September 8 to Friday September 12, 2014
Total Upgrades: 5
Total Downgrades: 15
Net Ratings Breakdown: Buy 38.06%; Hold 43.47%; Sell 18.47%

By Rudi Filapek-Vandyck, Editor FNArena

The trend in broker ratings for Australian stocks remains firmly negative with the week ending Friday, September 12, generating 15 downgrades in ratings against only five upgrades. Interestingly, all stocks receiving upgrades during the week are resources stocks, but only two upgrades result in a Buy rating. On the negative side we find a whole slew of iron ore exposed stocks alongside department store owner and perennial market disappointer Myer. The latter stuck to a long lasting legacy and disappointed yet again with its financial market update. The event was good for no less than four downgrades in rating.

Trends in price targets/valuations and in earnings forecasts are also negatively skewed but again most of the pain is located amongst resources stocks, including iron ore producers, amongst mining services providers and in Myer, of course. The same observation goes for profit estimates with the first price estimates for iron ore projections having been adjusted to the new reality of sub-US$100/tonne levels.

Probably the easiest observation to make from all of this is the Australian stock market remains a heavily polarised universe.?

Upgrades

BC Iron ((BCI)) upgraded to Neutral from Sell by Citi. B/H/S: 1/2/0

After the recent fall in the share price, Citi is upgrading the rating to Neutral from Sell. Target is unchanged at $2.30. If the Iron Ore Holdings ((IOH)) deal fell over the broker would consider this as a positive as the company does not appear to generate enough cash to fund the Buckland project on Citi's iron ore price forecasts.

See also BCI downgrade

BHP Billiton ((BHP)) upgraded to Add from Hold by CIMB Securities. B/H/S: 4/3/1

Notwithstanding reductions to earnings from cuts in iron ore price forecasts, CIMB upgrades to Add from Hold. This is in part due to the 9% fall in the share price since the result. The broker now reverts to a 100% net present value target derivation, in line with the Rio Tinto ((RIO)) model. Target is revised to $39.10 from $37.70. CIMB retains a preference for Rio Tinto, based on its more attractive earnings multiples and valuation.

Newcrest ((NCM)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 2/3/3

The broker is upgrading to Buy from Neutral, taking into account the company's potential to weather falls in the gold price. Merrills believes the market can envisage production upside from Cadia but is not willing to give the company credit for potential improvements.The stock appears attractive versus peers, in the broker's view. Target is raised to $12.50 from $11.50.

Oceanagold Corp ((OGC)) upgraded to Hold from Reduce by CIMB  Securities. B/H/S: 0/3/2

Taking into account lower forecast gold prices, CIMB downgrades to Reduce from Hold. Target is $3.30. Despite cutting forecast cash costs, valuation remains below the current share price. The broker suspects the company may struggle to reduce gearing.

Sandfire Resources ((SFR)) upgraded to Hold from Reduce by CIMB Securities. B/H/S: 3/4/1

CIMB is upgrading to Hold from Reduce along with increases in the long-term copper price forecasts. Target is raised to $5.80 from $5.50. Although the shorter mine life at DeGrussa captures less of this upside, from 2018 higher costs create greater leverage to the increased copper price.

Downgrades

Amcor ((AMC)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/3/1

Credit Suisse migrates its model to US dollar forecasts from Australian dollar reporting, as from FY15 Amcor will report in US dollars. The broker's target price is unchanged at $11.25. The rating is reduced to Underperform from Neutral on the share price appreciation, 4.2% since the FY14 result.

Arrium ((ARI)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 1/3/3

The broker notes 2014 iron ore supply from the world's top five producers looks set to be 86mt more than forecast, and the impact of low cost supply growth is occurring sooner and more significantly than the broker previously assumed. Australia has added half a Brazil in just nine months. The broker has subsequently cut its forecast 2014-19 prices by 5-20%. The broker has cut Arrium's forecast earnings by around 60% in FY15-16 as a result, noting a lot will have to go right if the business is to be turned around. The broker believes ARI will need to ration capex and cut its dividend. Downgrade to Underperform. Target falls to 78c from 86c.

Aust Pharmaceutical ((API)) downgraded to Sell from Neutral by UBS and to Neutral from Outperform by Credit Suisse. B/H/S: 1/2/1

UBS believes API is the net loser in market share, as better capitalised distributors are prepared to use balance sheet strength to acquire customer banner groups. This assessment follows Sigma's ((SIP)) recent acquisition of Discount Drug Stores. Further degradation of API's market share risks a tipping point against its fixed cost base, which UBS suspects will be difficult to unwind without impacting service quality. The stock is downgraded to Sell from Neutral. Credit Suisse is reducing API's wholesaling revenue forecasts from FY15. Earnings forecasts have been downgraded by 6%. The broker observes, despite the resurgence in competition in wholesaling, API's earnings are somewhat protected from the strong performance at Priceline. Rating is downgraded to Neutral from Outperform.

BC Iron ((BCI)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/2/0

The broker notes 2014 iron ore supply from the world's top five producers looks set to be 86mt more than forecast, and the impact of low cost supply growth is occurring sooner and more significantly than the broker previously assumed. Australia has added half a Brazil in just nine months. The broker has subsequently cut its forecast 2014-19 prices by 5-20%. The impact on mid-cap miners is 50-100% forecast earnings cuts across the coverage universe. Balance sheets become critical. BCI downgraded to Neutral. Target falls to $2.30 from $3.40.

See also BCI upgrade

Fortescue Metals ((FMG)) downgraded to Reduce from Hold by CIMB Securities. B/H/S: 4/3/1

Taking into account lower forecast iron ore prices, CIMB downgrades to Reduce from Hold. Target is $3.30. Despite cutting forecast cash costs, valuation remains below the current share price. The broker suspects the company may struggle to reduce gearing.

Goodman Group ((GMG)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 2/2/2

Last month the broker downgraded Goodman to Neutral from Overweight as it was trading close to target, and now the broker has gone step further and downgraded to Underweight as the share price has reached the target. It is simply a valuation call, given the broker believes GMG will exceed its 6% FY15 earnings growth guidance and comfortably achieve its 6%pa through-the-cycle growth goal. JP Morgan rates on a sector-relative rather than market-relative basis, so this is an Underweight against other REITs call. Target ticks up to $5.42 from $5.41.

Grange Resources ((GRR)) downgraded to Underperform from Outperform by Macquarie. B/H/S: 1/0/1

The broker notes 2014 iron ore supply from the world's top five producers looks set to be 86mt more than forecast, and the impact of low cost supply growth is occurring sooner and more significantly than the broker previously assumed. Australia has added half a Brazil in just nine months. The broker has subsequently cut its forecast 2014-19 prices by 5-20%. The impact on mid-cap miners is 50-100% forecast earnings cuts across the coverage universe. Balance sheets become critical. Grange downgraded to Underperform from Outperform. Target falls to 13c from 20c.

Iron Ore Holdings ((IOH)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0

The broker notes 2014 iron ore supply from the world's top five producers looks set to be 86mt more than forecast, and the impact of low cost supply growth is occurring sooner and more significantly than the broker previously assumed. Australia has added half a Brazil in just nine months. The broker has subsequently cut its forecast 2014-19 prices by 5-20%. The impact on mid-cap miners is 50-100% forecast earnings cuts across the coverage universe. Balance sheets become critical. Iron Ore Holdings downgraded to Neutral. Target falls to $1.10 from $1.42.

Myer ((MYR)) downgraded to Hold from Add by CIMB Securities, to Sell from Neutral by Citi, to Underweight from Neutral by JP Morgan and to Sell from Neutral by UBS . B/H/S: 3/1/4

FY14 earnings were below CIMB's expectations. A number of years of unsustainable cost cutting and deferrals has led to the company finally acknowledging the level of underinvestment, in the broker's opinion. Now this is factored in, the biggest risks is the profit margin in FY15 and CIMB suspects the company will still find it hard to pass on higher costs. Guidance for modest growth in margins is aspirational. Downgrade to Hold from Add. The sharp fall in second half FY14 gross margins suggests to Citi a poor run rate leading into FY15. Myer has indicated it will spend an additional $35-50m in FY15 to support growth. The intentions may be good but  the broker considers earnings will decline before they improve. The broker expects another decline in earnings in FY15 and downgrades to Sell from Neutral. Myer's result missed JP Morgan, with lower gross margins the major culprit. Myer expects sales and gross margins to grow in FY15, but increasing cost of doing business will lead to lower profit. Sales growth has been elusive for MYR for 20 years now, the broker notes, and while new stores, refurbishments and online developments should drive growth, increasing costs and competition are pushing the other way. Valuation is supported by yield but this is debt funded, the broker points out, and MYR is simply not cheap. Downgrade to Underweight. Myer is doing all the right things, UBS suggests, yet it is simply struggling and having to spend more and more money just to stand still. The broker has cut forecast earnings by 22% and 15% in FY15-16 and downgraded to Sell. The broker believes earnings risk is to the downside, the stock is not yet cheap, and notes MYR is one company which will actually suffer as the Australian dollar falls.

Sigma Pharmaceutical ((SIP)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/5/2

Sigma has acquired the Discount Drug Store banner group, providing wholesale services to 121 branded pharmacies. The acquisition will be funded with cash and is expected to be immediately earnings accretive. Credit Suisse has incorporated higher earnings and upgraded forecasts. The target price is raised to 73c from 69c but, based on relative share price performance, the rating moves to Underperform from Neutral.

Sundance Resources ((SDL)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 3/4/1

She broker notes 2014 iron ore supply from the world's top five producers looks set to be 86mt more than forecast, and the impact of low cost supply growth is occurring sooner and more significantly than the broker previously assumed. Australia has added half a Brazil in just nine months. The broker has subsequently cut its forecast 2014-19 prices by 5-20%. The impact on mid-cap miners is 50-100% forecast earnings cuts across the coverage universe. Balance sheets become critical. Sundance downgraded to Neutral. Target falls to 9c from 12c.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 BC IRON LIMITED Sell Neutral Citi
2 BHP BILLITON LIMITED Neutral Buy CIMB Securities
3 NEWCREST MINING LIMITED Neutral Buy BA-Merrill Lynch
4 OCEANAGOLD CORPORATION Sell Neutral CIMB Securities
5 SANDFIRE RESOURCES NL Sell Neutral CIMB Securities
Downgrade
6 AMCOR LIMITED Neutral Sell Credit Suisse
7 ARRIUM LIMITED Neutral Sell Macquarie
8 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Neutral Sell UBS
9 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Buy Neutral Credit Suisse
10 BC IRON LIMITED Buy Neutral Macquarie
11 FORTESCUE METALS GROUP LTD Neutral Sell CIMB Securities
12 GOODMAN GROUP Neutral Sell JP Morgan
13 GRANGE RESOURCES LIMITED Buy Sell Macquarie
14 IRON ORE HOLDINGS LIMITED Buy Neutral Macquarie
15 MYER HOLDINGS LIMITED Buy Neutral CIMB Securities
16 MYER HOLDINGS LIMITED Neutral Sell Citi
17 MYER HOLDINGS LIMITED Neutral Sell JP Morgan
18 MYER HOLDINGS LIMITED Neutral Sell UBS
19 Sigma Pharmaceuticals Ltd Neutral Sell Credit Suisse
20 SUNDANCE RESOURCES LIMITED Buy Neutral Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous Rating New Rating Change Recs
1 MMS MCMILLAN SHAKESPEARE LIMITED 50.0% 100.0% 50.0% 3
2 TEL TELECOM CORPORATION OF NEW ZEALAND LIMITED 29.0% 67.0% 38.0% 3
3 QAN QANTAS AIRWAYS LIMITED 25.0% 43.0% 18.0% 7
4 AIZ AIR NEW ZEALAND LIMITED 33.0% 50.0% 17.0% 4
5 HSO HEALTHSCOPE LIMITED 50.0% 67.0% 17.0% 6
6 BHP BHP BILLITON LIMITED 25.0% 38.0% 13.0% 8
7 NHF NIB HOLDINGS LIMITED – 33.0% – 20.0% 13.0% 5
8 SFR SANDFIRE RESOURCES NL 13.0% 25.0% 12.0% 8
9 NCM NEWCREST MINING LIMITED – 25.0% – 13.0% 12.0% 8
10 SAI SAI GLOBAL LIMITED 14.0% 25.0% 11.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous Rating New Rating Change Recs
1 MYR MYER HOLDINGS LIMITED 38.0% – 13.0% – 51.0% 8
2 FWD FLEETWOOD CORPORATION LIMITED – 40.0% – 67.0% – 27.0% 3
3 SXY SENEX ENERGY LIMITED 80.0% 60.0% – 20.0% 5
4 AUB AUSTBROKERS HOLDINGS LIMITED 50.0% 33.0% – 17.0% 3
5 AMC AMCOR LIMITED 33.0% 17.0% – 16.0% 6
6 EVN EVOLUTION MINING LIMITED 40.0% 25.0% – 15.0% 4
7 SIP Sigma Pharmaceuticals Ltd – 14.0% – 29.0% – 15.0% 7
8 ORI ORICA LIMITED 38.0% 25.0% – 13.0% 8
9 FMG FORTESCUE METALS GROUP LTD 50.0% 38.0% – 12.0% 8
10 DLX DULUX GROUP LIMITED 25.0% 14.0% – 11.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous Target New Target Change Recs
1 SIP Sigma Pharmaceuticals Ltd 0.686 0.736 7.29% 7
2 NHF NIB HOLDINGS LIMITED 3.040 3.208 5.53% 5
3 MMS MCMILLAN SHAKESPEARE LIMITED 12.565 13.253 5.48% 3
4 QAN QANTAS AIRWAYS LIMITED 1.453 1.521 4.68% 7
5 AWE AWE LIMITED 2.060 2.144 4.08% 5
6 SFH SPECIALTY FASHION GROUP LIMITED 0.980 1.017 3.78% 3
7 AWC ALUMINA LIMITED 1.481 1.521 2.70% 7
8 NCM NEWCREST MINING LIMITED 10.514 10.739 2.14% 8
9 ORA ORORA LIMITED 1.688 1.707 1.13% 7
10 HSO HEALTHSCOPE LIMITED 2.525 2.550 0.99% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous Target New Target Change Recs
1 FBU FLETCHER BUILDING LIMITED 9.000 0.000 – 100.00% 7
2 SXY SENEX ENERGY LIMITED 0.786 0.716 – 8.91% 5
3 LYC LYNAS CORPORATION LIMITED 0.200 0.183 – 8.50% 3
4 FMG FORTESCUE METALS GROUP LTD 5.069 4.700 – 7.28% 8
5 EVN EVOLUTION MINING LIMITED 0.914 0.853 – 6.67% 4
6 BLY BOART LONGYEAR LIMITED 0.173 0.162 – 6.36% 5
7 FWD FLEETWOOD CORPORATION LIMITED 2.376 2.240 – 5.72% 3
8 MYR MYER HOLDINGS LIMITED 2.299 2.175 – 5.39% 8
9 OGC OCEANAGOLD CORPORATION 2.862 2.724 – 4.82% 5
10 BSL BLUESCOPE STEEL LIMITED 6.186 6.070 – 1.88% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous EF New EF Change Recs
1 PNA PANAUST LIMITED 11.003 11.533 4.82% 7
2 AIZ AIR NEW ZEALAND LIMITED 20.942 21.870 4.43% 4
3 AQG ALACER GOLD CORP 21.631 22.513 4.08% 6
4 TEL TELECOM CORPORATION OF NEW ZEALAND LIMITED 15.575 15.901 2.09% 3
5 TME TRADE ME GROUP LIMITED 18.528 18.876 1.88% 6
6 DXS DEXUS PROPERTY GROUP 9.097 9.261 1.80% 7
7 FXL FLEXIGROUP LIMITED 29.648 30.048 1.35% 5
8 CHC CHARTER HALL GROUP 26.860 27.170 1.15% 7
9 BXB BRAMBLES LIMITED 46.760 47.273 1.10% 7
10 WPL WOODSIDE PETROLEUM LIMITED 331.635 335.080 1.04% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous EF New EF Change Recs
1 MGX Mount Gibson Iron Limited 1.965 0.153 – 92.21% 7
2 AWC ALUMINA LIMITED 0.808 0.161 – 80.07% 7
3 FMG FORTESCUE METALS GROUP LTD 80.223 62.687 – 21.86% 8
4 BCI BC IRON LIMITED 27.725 23.250 – 16.14% 3
5 ARI ARRIUM LIMITED 10.775 9.638 – 10.55% 7
6 SXY SENEX ENERGY LIMITED 5.340 5.000 – 6.37% 5
7 IPL INCITEC PIVOT LIMITED 19.850 18.970 – 4.43% 8
8 MIN MINERAL RESOURCES LIMITED 85.500 81.750 – 4.39% 3
9 BHP BHP BILLITON LIMITED 274.692 264.170 – 3.83% 8
10 NUF NUFARM LIMITED 27.988 26.966 – 3.65% 8
 

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CHARTS

AMC BCI BHP FMG GMG GRR MYR NCM RIO SFR

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