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Weekly Recommendation, Target Price, Earnings Forecast Changes

Australia | Mar 30 2015

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley, Morgans 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 March 23 to Friday March 27, 2015
Total Upgrades: 5
Total Downgrades: 10
Net Ratings Breakdown: Buy 40.77%; Hold 41.52%; Sell 17.71%

The week ending Friday, 27th March 2015, once again displayed a familiar pattern in 2015: stockbrokers continue to downgrade more stocks than they upgrade. FNArena registered ten downgrades versus five upgrades for the week with Bank of Queensland and Nufarm responsible for two downgrades each.

The regional lender and seeds and crop protection provider were the latest contributors to what increasingly looks a subdued, if not disappointing series of out-of-season reporting results, which also has revealed most retailers surprising to the downside. Brickworks and Premier Investments stood out during the week against this seemingly gloomy background. Premier Investments received one downgrade too, as Credit Suisse believes the share price has rallied too hard.

Remarkable is the fact the table for downward revisions to price targets is dominated by mining services providers, while retailers, unsurprisingly, remain prominent on the table for downward revisions to earnings estimates. On the positive side, precious metals producers were the dominant receivers of positive revisions to earnings forecasts during the week.

Upgrades

AGL Energy ((AGL)) upgraded to Buy from Neutral by Citi. B/H/S: 3/4/1

The broker has reviewed its valuation for Australian electricity providers, increasing its longer term electricity price forecasts on higher east coast gas price assumptions and moving PE valuation to a relative, rather than absolute, basis to better reflect investor appetite for yield. The recent decline in electricity demand, and subsequently lower prices, along with renewable pricing uncertainty, has caused AGL to issue profit warnings and its share price to underperform. The broker has lifted its AGL target to $16.33 from $15.00 and upgrades to Buy.

Echo Entertainment ((EGP)) upgraded to Overweight from Equal-weight by Morgan Stanley. B/H/S: 6/2/0

Morgan Stanley expects Australasian VIP gaming growth of 48% and 26% in FY15 and FY16 respectively. Echo Entertainment and its competitors are driving structural VIP growth by providing junkets with better working capital and commission rates versus Macau. The broker believes junkets are decelerating in Macau, given China’s anti-corruption measures and a slowing Chinese property market. Australia has been dubbed the key jurisdiction which should benefit from the slowdown in Macau. In this scenario, the broker considers Echo Entertainment the most leveraged to growth and upgrades to Overweight from Equal-weight. Target is raised to $5.60 from $3.90 and industry view is In-Line.

Kathmandu ((KMD)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 2/3/0

First half results were in line with the revised guidance. Credit Suisse notes near-term guidance is soft, with sales around 2.0% below last year in comparable terms over the last seven weeks. The broker downgrades the target to NZ$1.70 from NZ$1.80 but, in line with the extreme share price reaction, upgrades to Outperform from Neutral. While the near-term outlook is soft Credit Suisse believes it is naive to discount the potential for corporate activity.

Perseus Mining ((PRU)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/3/0

The broker has lowered its A$ forecasts which leads to earnings upgrades for gold miners. The broker is bullish gold and bases its valuations upon this stance, acknowledging that valuations would be materially different were the broker to assume current A$ spot gold pricing. Perseus’ target unchanged at 40c. Upgrade to Outperform.

Regis Resources ((RRL)) upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S: 4/4/0

Garden Well continues to be plagued by issues with throughput, grade and recovery. Morgan Stanley factors in conservative assumptions and, while most of the issues are reflected in the share price, finds there is no reason to be a buyer of the stock yet. The broker’s rating is upgraded to Equal-weight from Underweight as the current share price now implies US dollar gold prices around spot. The target is reduced to $1.35 from $1.65.

Downgrades

Bank of Queensland ((BOQ)) downgraded to Neutral from Buy by Citi and to Underweight from Neutral by JP Morgan. B/H/S: 0/6/2

Bank of Qld’s result was in line and suggests the continuation of a multi-year recovery story, the broker contends. The bank has returned to system lending growth levels after years of being below system. But recovery tailwinds are likely now easing, the broker suggests, and investors will not be happy with an increase in investment-related expenses. Rolling forward the broker’s valuation leads to a target upgrade to $14.50 from $14.00 but while the broker prefers the regionals over the Big Four, it has pulled its BOQ rating back to Neutral. JP Morgan accepts the higher expense trajectory overshadowed some positive aspects including margin improvement and volume growth. Given the share price performance recently, and the results, the broker now envisages the regional banks are trading at similar valuation premiums. Hence, Bank of Queensland’s rating is downgraded to Underweight from Neutral to be alongside Bendigo & Adelaide ((BEN)). Target is lowered to $11.92 from $12.04.

BlueScope Steel ((BSL)) downgraded to Neutral from Buy by UBS. B/H/S: 6/2/0

UBS suspects there is considerable risk around consensus growth expectations and downgrades to Neutral from Buy. Target is lowered to $4.90 from $6.00. Given the broker’s global view on Chinese steel consumption, production and the direction of commodity prices, the market is considered too optimistic about a turnaround for BlueScope’s Australian steel division. The broker’s lower forecasts, 7.0% below current market expectations, stem from a cautious near-term outlook for regional steel spreads, the iron sands and Asian businesses through the June half.

CSL ((CSL)) downgraded to Underweight from Equal-weight by Morgan Stanley. B/H/S: 6/0/2

Morgan Stanley expects profit growth to slow, given the removal of industry bottlenecks, competition and ongoing pressure in coagulants. Negatives outweigh the positives emanating from Australian dollar weakness and ongoing buy-backs, in the broker’s opinion. Constraints have dissipated and this will level the playing field for CSL, with the broker expecting the company to revert to around 7.0% market growth with downside risk if it loses share. Rating is downgraded to Underweight from Equal-weight and the target is raised to $81.00 from $79.74.

Energy Developments ((ENE)) downgraded to Hold from Add by Morgans. B/H/S: 5/1/0

The company has lifted earnings guidance for FY15. Morgans had suspected this might end up the case because of strong Queensland power prices and higher large scale generation certificate (LGC) prices as well as favourable currency movements. The broker considers the growth outlook healthy but, given limited upside offered at the current share price and the potential sell-down by its major shareholder, the rating is downgraded to Hold from Add. Target is reduced to $6.96 from $7.05.

Fortescue Metals ((FMG)) downgraded to Underweight from Equal-weight by Morgan Stanley. B/H/S: 2/4/2

Morgan Stanley has become more cautious, reducing the iron ore price forecasts by 28% for 2015 and by 13% for 2016. The broker acknowledges its thesis based on recovering prices and a debt refinance has not played out for Fortescue Metals. Fortescue is expected to still achieve a modest free cash flow margin at spot prices so, more than ever, price will determine sentiment. As a result of becoming less confident in the outlook the broker downgrades to Underweight from Equal-weight and reduces the target to $1.65 from $2.60.

Nufarm ((NUF)) downgraded to Sell from Hold by Deutsche Bank and to Hold from Add by Morgans. B/H/S: 0/4/2

Deutsche Bank views the first half result, which was broadly in line with expectations, as a negative, suspecting the outlook commentary is not sufficient to sustain the recent rally in the share price. The result was boosted by FX gains and lower R&D expense while net operating cash flow was significantly weaker than the broker expected. Deutsche Bank downgrades to Sell from Hold, with the stock trading at a 12% premium to revised valuation. Target is lifted to $6.05 from $5.50. The first half result was slightly below Morgans’ forecasts but pleasing in that it revealed continued progress on working capital. Morgans expects further benefits on this front and $116m in cost savings should lift returns significantly over the next 2-3 years. The broker downgrades to Hold from Add after the strong appreciation in the share price but remains a buyer on any material weakness. Target is raised to $7.20 from $5.15.

Panoramic Resources ((PAN)) downgraded to Equal-weight from Overweight by Morgan Stanley. B/H/S: 1/2/0

Morgan Stanley’s commodities team has reduced its price outlook for copper and nickel over 2015-16. Hence, the broker downgrades Panoramic Resources to Equal-weight from Overweight, maintaining a preference for Western Areas ((WSA)) in the nickel space. Target is lowered to 65c from 70c. In-Line industry view is retained.

Premier Investments ((PMV)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 0/4/1

The first half revealed another stellar result, in Credit Suisse’s opinion, driven by strong performances from Smiggle UK and Peter Alexander. Gross margin expanded and costs were contained, the broker adds. Credit Suisse increases long-term forecasts to reflect higher growth for Smiggle and Peter Alexander and notes capital management remains on the agenda, with further special dividends likely in the absence of acquisitions. The broker downgrades to Neutral from Outperform, given the share price rally. Target is raised to $13.40 from $11.80.
 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup
<img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=Citi,CreditSuisse,DeutscheBank,JPMorgan,Macquarie,MorganStanley,Morgans,UBS&b0=83,77,91,74,135,72,164,97&h0=102,112,135,107,106,59,155,126&s0=50,60,20,51,49,40,23,43″ style=”border:1px solid #000000″ />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 AGL ENERGY LIMITED Neutral Buy Citi
2 ECHO ENTERTAINMENT GROUP LIMITED Neutral Buy Morgan Stanley
3 KATHMANDU HOLDINGS LIMITED Neutral Buy Credit Suisse
4 PERSEUS MINING LIMITED Neutral Buy Macquarie
5 REGIS RESOURCES LIMITED Sell Neutral Morgan Stanley
Downgrade
6 BANK OF QUEENSLAND LIMITED Buy Neutral Citi
7 BANK OF QUEENSLAND LIMITED Neutral Sell JP Morgan
8 BLUESCOPE STEEL LIMITED Buy Neutral UBS
9 CSL LIMITED Neutral Sell Morgan Stanley
10 ENERGY DEVELOPMENTS LIMITED Buy Neutral Morgans
11 FORTESCUE METALS GROUP LTD Neutral Sell Morgan Stanley
12 NUFARM LIMITED Buy Neutral Morgans
13 NUFARM LIMITED Neutral Sell Deutsche Bank
14 PANORAMIC RESOURCES LIMITED Buy Neutral Morgan Stanley
15 PREMIER INVESTMENTS LIMITED Buy Neutral Credit Suisse
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous Rating New Rating Change Recs
1 SXY SENEX ENERGY LIMITED 50.0% 67.0% 17.0% 6
2 FWD FLEETWOOD CORPORATION LIMITED – 50.0% – 33.0% 17.0% 3
3 PRU PERSEUS MINING LIMITED 43.0% 57.0% 14.0% 7
4 OZL OZ MINERALS LIMITED 50.0% 63.0% 13.0% 8
5 EGP ECHO ENTERTAINMENT GROUP LIMITED 63.0% 75.0% 12.0% 8
6 RRL REGIS RESOURCES LIMITED 38.0% 50.0% 12.0% 8
7 AGL AUSTRALIAN GAS LIGHT COMPANY (THE) 13.0% 25.0% 12.0% 8
8 TOL TOLL HOLDINGS LIMITED – 25.0% – 14.0% 11.0% 7
9 NWH NRW HOLDINGS LIMITED 20.0% 25.0% 5.0% 4
10 APN APN NEWS & MEDIA LIMITED 29.0% 33.0% 4.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous Rating New Rating Change Recs
1 PAN PANORAMIC RESOURCES LIMITED 67.0% 33.0% – 34.0% 3
2 MYR MYER HOLDINGS LIMITED – 13.0% – 38.0% – 25.0% 8
3 MTR MANTRA GROUP LIMITED 50.0% 33.0% – 17.0% 3
4 ENE ENERGY DEVELOPMENTS LIMITED 100.0% 83.0% – 17.0% 6
5 BSL BLUESCOPE STEEL LIMITED 88.0% 75.0% – 13.0% 8
6 ORI ORICA LIMITED – 13.0% – 25.0% – 12.0% 8
7 PRY PRIMARY HEALTH CARE LIMITED 25.0% 13.0% – 12.0% 8
8 MND MONADELPHOUS GROUP LIMITED – 57.0% – 67.0% – 10.0% 6
9 UGL UGL LIMITED – 50.0% – 57.0% – 7.0% 7
10 EHL EMECO HOLDINGS LTD – 20.0% – 25.0% – 5.0% 4
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous Target New Target Change Recs
1 TOL TOLL HOLDINGS LIMITED 8.128 8.514 4.75% 7
2 EGP ECHO ENTERTAINMENT GROUP LIMITED 4.559 4.771 4.65% 8
3 ENE ENERGY DEVELOPMENTS LIMITED 6.942 7.258 4.55% 6
4 OZL OZ MINERALS LIMITED 4.966 5.079 2.28% 8
5 MTR MANTRA GROUP LIMITED 3.345 3.417 2.15% 3
6 SXY SENEX ENERGY LIMITED 0.453 0.458 1.10% 6
7 AGL AGL ENERGY LIMITED 15.210 15.358 0.97% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous Target New Target Change Recs
1 NWH NRW HOLDINGS LIMITED 0.562 0.413 – 26.51% 4
2 MYR MYER HOLDINGS LIMITED 1.814 1.479 – 18.47% 8
3 FWD FLEETWOOD CORPORATION LIMITED 1.825 1.683 – 7.78% 3
4 MND MONADELPHOUS GROUP LIMITED 9.937 9.242 – 6.99% 6
5 EHL EMECO HOLDINGS LTD 0.172 0.160 – 6.98% 4
6 PAN PANORAMIC RESOURCES LIMITED 0.647 0.630 – 2.63% 3
7 BSL BLUESCOPE STEEL LIMITED 5.954 5.816 – 2.32% 8
8 RRL REGIS RESOURCES LIMITED 1.640 1.603 – 2.26% 8
9 ORI ORICA LIMITED 20.563 20.246 – 1.54% 8
10 PRU PERSEUS MINING LIMITED 0.491 0.484 – 1.43% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company Previous EF New EF Change Recs
1 SLR SILVER LAKE RESOURCES LIMITED 0.575 0.925 60.87% 4
2 BKW BRICKWORKS LIMITED 68.833 82.633 20.05% 3
3 OZL OZ MINERALS LIMITED 12.209 14.221 16.48% 8
4 SIP Sigma Pharmaceuticals Ltd 4.823 5.310 10.10% 7
5 BDR BEADELL RESOURCES LIMITED 6.140 6.640 8.14% 5
6 NCM NEWCREST MINING LIMITED 53.610 56.448 5.29% 8
7 ILU ILUKA RESOURCES LIMITED 22.349 23.474 5.03% 8
8 ENE ENERGY DEVELOPMENTS LIMITED 33.955 35.622 4.91% 6
9 ALL ARISTOCRAT LEISURE LIMITED 35.094 35.741 1.84% 7
10 RRL REGIS RESOURCES LIMITED 14.091 14.204 0.80% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company Previous EF New EF Change Recs
1 MYR MYER HOLDINGS LIMITED 15.171 12.939 – 14.71% 8
2 ORL OROTONGROUP LIMITED 14.810 12.820 – 13.44% 4
3 RIO RIO TINTO LIMITED 449.524 415.635 – 7.54% 8
4 KMD KATHMANDU HOLDINGS LIMITED 10.938 10.323 – 5.62% 5
5 AWC ALUMINA LIMITED 11.212 10.819 – 3.51% 8
6 AOG AVEO GROUP 12.000 11.667 – 2.78% 3
7 PNA PANAUST LIMITED 3.129 3.049 – 2.56% 8
8 BHP BHP BILLITON LIMITED 190.960 186.849 – 2.15% 8
9 TOX TOX FREE SOLUTIONS LIMITED 18.760 18.360 – 2.13% 5
10 MND MONADELPHOUS GROUP LIMITED 118.343 116.343 – 1.69% 6
 

Technical limitations

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CHARTS

AGL BEN BOQ BSL CSL FMG KMD NUF PAN PMV PRU RRL

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: KMD - KMD BRANDS LIMITED

For more info SHARE ANALYSIS: NUF - NUFARM LIMITED

For more info SHARE ANALYSIS: PAN - PANORAMIC RESOURCES LIMITED

For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED

For more info SHARE ANALYSIS: PRU - PERSEUS MINING LIMITED

For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED