Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ALUMINA LIMITED, and other companies. For more info SHARE ANALYSIS: AWC

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 September 28 to Friday October 2, 2015
Total Upgrades: 3
Total Downgrades: 12
Net Ratings Breakdown: Buy 46.14%; Hold 41.62%; Sell 12.24%

Ongoing downward adjustments to global growth projections, and thus to commodity prices estimates, continue to dominate changes in stockbroker’s forecasts and ratings. For yet another week FNArena’s report for the five days ending Friday, 2 October 2015, looks like a barren wasteland of resources stocks whose valuations and estimates come tumbling down like a satellite falling from the sky.

Amidst ongoing resources carnage, it’s hard for industrials and/or financials to get noticed. It’ll take something special, like a big acquisition or a full year financial result. Soon we’ll see the banks reporting, that’ll upset current market dynamics. At least for a bit.

For the week, FNArena recorded three upgrades against twelve downgrades. Two of the upgrades went to OceanaGold.

Industrials stocks that apparently have now run up too far include APN Outdoor, Brambles, M2 Telecom and TPG Telecom.

The true impact from the growth downgrades is apparent in the tables for negative adjustments to valuations/targets and profit estimates were large revisions dominate and only a scarce non-resources stock appears. Brickworks, Japara Healthcare, APN Outdoor and M2 Telecom feature on the positive side.

Upgrade

AUSNET SERVICES ((AST)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/7/0

Morgan Stanley has incorporated a new environmental, social and governance (ESG) framework into its utility analysis. The ESG risk is considered low for non-merchant utilities and protections appear adequate as long as investors go in with “eyes open”.

Morgan Stanley upgrades Ausnet Services to Overweight from Equal-weight primarily on valuation. A Cautious industry view is retained. Target is reduced to $1.45 from $1.50.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Buy from Neutral by Citi and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/1/1

The company is likely to acquire the Haile gold project in South Carolina via Romarco Minerals and, with a pull back in the share price, Citi upgrades to Buy from Neutral.

Citi expects the acquisition of Romarco will be approved by shareholders. The broker incorporates Haile into models.Target is lowered to $2.46 from $2.73.

Weaker demandand a lack of supply reductions are weighing on commodity prices. Unfortunately, Deutsche Bank finds no sign of an improvement in demand from China and there are few reasons to re-rate the mining sector.

OceanaGold’s rating is upgraded to Buy from Hold, being one of the companies positioned to create value by being counter-cyclical at this point. Target is steady at $3.00.

Downgrade

APN OUTDOOR GROUP LIMITED ((APO)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0

UBS notes data for FY15 indicates outdoor advertising continues to capture share from other media. APN Outdoor’s share price has lifted 15% since the first half results and the stock is now trading near the broker’s fundamental valuation.

As a result UBS downgrades to Neutral from Buy on valuation grounds and raises the target to $4.00 from $3.60. The broker remains positive on the growth story and lifts long-term revenue forecasts slightly.

ALACER GOLD CORP ((AQG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/0

In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. This has had a negative impact on most price targets.

A lower Australian dollar provides an offset to some price downgrades. US dollar gold forecasts are relatively unchanged while Australian dollar gold price expectations rise 7-14% over the medium term.

Morgan Stanley downgrades to Equal-weight from Overweight rating, given limited upside in Alacer Gold and the fact the stock receives no benefit from a weaker Australian dollar. In-Line sector view retained. Target is raised to $3.55 from $3.45.

ALUMINA LIMITED ((AWC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/2/1

Alcoa’s intention to split into two companies is hard to quantify, Morgan Stanley maintains. The company intends to separate its downstream from its upstream business.

Alcoa is intent on achieving a strong non-investment grade credit rating for its traditional business and an investment grade for its value-added downstream business.

The AWAC joint venture will fall within the traditional business and may, given a tighter focus, improve the existing performance.

Nevertheless, with major revisions to commodity price forecasts Morgan Stanley downgrades AWC to Equal-weight from Overweight and lowers the target to $1.30 from $2.20. In-Line industry view retained.

BRAMBLES LIMITED ((BXB)) Downgrade to Underperform from Outperform by Credit Suisse .B/H/S: 2/5/1

Credit Suisse now expects capital intensity to increase and margins to remain weak for a number of years. While management has suggested strong growth in the US pallet business could alleviate durability problems this is of concern as it suggests a higher risk of pallet scrapping/write-offs.

The broker downgrades to Underperform from Outperform. Its positive view was partly based on the potential of new asset tracing technology but the company appears to have made less progress on this front than previously expected. Target is reduced to $8.60 from $11.00.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/2/1

In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. This has had a negative impact on most price targets.

A lower Australian dollar provides an offset to some price downgrades. Major downward revisions are in iron ore, alumina, copper and thermal coal.

Morgan Stanley downgrades Iluka to Equal-weight from Overweight on a relative preference basis and reduced long-term prices. In-Line sector view retained. Target is reduced to $7.40 from $9.00.

MEDUSA MINING LIMITED ((MML)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/1/1

In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. This has had a negative impact on most price targets.

A lower Australian dollar provides an offset to some price downgrades. US dollar gold price forecasts are largely unchanged while Australian dollar gold price expectations increase 7-14% over the medium to longer term.

Morgan Stanley downgrades Medusa Mining to Underweight from Equal-weight. Target drops to 40c from 60c.

M2 TELECOMMUNICATIONS GROUP LIMITED ((MTU)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/0

M2 Telecom and Vocus ((VOC)) have announced an all-scrip merger based on 1.625 Vocus shares for every M2 Telecom share.

Morgans believes this will create a substantially stronger business with the benefits of infrastructure and distribution. There is a small chance TPG Telecom ((TPM)) will block the deal as its balance sheet is now stretched after acquiring iiNet.

Morgans sets its target to $9.77 at the implied offer value (from $10.50). Rating is downgraded to Hold from Add.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Underweight from Overweight by Morgan Stanley .B/H/S: 3/2/1

Origin Energy has announced measure to protect its balance sheet and will raise $2.5bn in equity via a rights issue at $4 a share, targeting non-core asset sales up to $800m as well as reducing capex and working capital.

The action is sufficient to protect the credit rating and achieve stated debt reduction, in Morgan Stanley’s view, but comes at a cost to ordinary shareholders. Earnings per share and dividend per share are reduced substantially.

The broker downgrades to Underweight from Overweight. Cautious industry view retained. Target is reduced to $6.00 from $10.20.

PANORAMIC RESOURCES LIMITED ((PAN)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/2/1

In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. This has had a negative impact on most price targets.

A lower Australian dollar provides an offset to some price downgrades. Major downward revisions are in iron ore, alumina, copper and thermal coal.

Morgan Stanley downgrades to Underweight from Equal-weight. In-Line industry view retained. Target is reduced to 30c from 45c.

SOUTH32 LIMITED ((S32)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 6/1/0

In a break from the usual process, Morgan Stanley is reviewing commodity price forecasts outside the end-of-year period. This has had a negative impact on most price targets.

A lower Australian dollar provides an offset to some price downgrades. Major downward revisions are in iron ore, alumina, copper and thermal coal.

The broker downgrades South32 to Equal-weight from Overweight on a relative preference basis and reduced long-term price forecasts. Target is lowered to $1.65 from $2.45. Sector view is In-Line.

TPG TELECOM LIMITED ((TPM)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/2/2

The company may have impressed to date with its growth but Credit Suisse notes the iiNet transaction more than doubles its exposure to the consumer internet service segment, just as the NBN is about to drive significant industry changes.

The opportunity for further growth through M&A is limited. A new analyst assumes coverage and the rating is downgraded to Underperform from Neutral.

The broker does not believe the NBN margin headwinds are being priced in adequately. Target is lowered to $9.00 from $10.00.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 5/3/0

Weaker demand and a lack of supply reductions are weighing on commodity prices. The broker has reduced copper, aluminium, nickel and coal price forecasts.

Unfortunately, Deutsche Bank finds no sign of an improvement in demand from China and there are few reasons to re-rate the mining sector.

Whitehaven Coal’s rating is downgraded to Hold from Buy. Target is reduced to $1.15 from $1.60.

 

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=91,84,93,65,142,77,159,107&h0=95,106,117,98,90,60,124,104&s0=24,32,15,41,39,42,15,31″ style=”border:1px solid #000000″ />

 

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 AUSNET SERVICES Buy Neutral Morgan Stanley 2 OCEANAGOLD CORPORATION Buy Neutral Citi 3 OCEANAGOLD CORPORATION Buy Neutral Deutsche Bank Downgrade 4 ALACER GOLD CORP Neutral Buy Morgan Stanley 5 ALUMINA LIMITED Neutral Buy Morgan Stanley 6 APN OUTDOOR GROUP LIMITED Neutral Buy UBS 7 BRAMBLES LIMITED Sell Buy Credit Suisse 8 ILUKA RESOURCES LIMITED Neutral Buy Morgan Stanley 9 M2 TELECOMMUNICATIONS GROUP LIMITED Neutral Buy Morgans 10 MEDUSA MINING LIMITED Sell Neutral Morgan Stanley 11 ORIGIN ENERGY LIMITED Sell Buy Morgan Stanley 12 PANORAMIC RESOURCES LIMITED Sell Neutral Morgan Stanley 13 SOUTH32 LIMITED Neutral Buy Morgan Stanley 14 TPG TELECOM LIMITED Sell Neutral Credit Suisse 15 WHITEHAVEN COAL LIMITED Neutral Buy Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 CTD CORPORATE TRAVEL MANAGEMENT LIMITED 67.0% 25.0% 42.0% 3 2 MYR MYER HOLDINGS LIMITED – 14.0% – 29.0% 15.0% 7 3 CAB CABCHARGE AUSTRALIA LIMITED 33.0% 20.0% 13.0% 3 4 NCM NEWCREST MINING LIMITED – 13.0% – 25.0% 12.0% 8 5 AGO ATLAS IRON LIMITED – 67.0% – 75.0% 8.0% 3 6 SAI SAI GLOBAL LIMITED 33.0% 29.0% 4.0% 6 7 MTR MANTRA GROUP LIMITED 83.0% 80.0% 3.0% 6

Negative Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 PAN PANORAMIC RESOURCES LIMITED – 33.0% 33.0% – 66.0% 3 2 BKW BRICKWORKS LIMITED 25.0% 75.0% – 50.0% 4 3 APO APN OUTDOOR GROUP LIMITED 67.0% 100.0% – 33.0% 3 4 BXB BRAMBLES LIMITED 13.0% 43.0% – 30.0% 8 5 ORG ORIGIN ENERGY LIMITED 33.0% 57.0% – 24.0% 6 6 AWC ALUMINA LIMITED 43.0% 63.0% – 20.0% 7 7 AQG ALACER GOLD CORP 33.0% 50.0% – 17.0% 6 8 MTU M2 TELECOMMUNICATIONS GROUP LIMITED 33.0% 50.0% – 17.0% 6 9 ARI ARRIUM LIMITED – 29.0% – 14.0% – 15.0% 7 10 DUE DUET GROUP 14.0% 29.0% – 15.0% 7

Target Price

Positive Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 CTD CORPORATE TRAVEL MANAGEMENT LIMITED 12.990 11.993 8.31% 3 2 NCM NEWCREST MINING LIMITED 12.413 11.638 6.66% 8 3 APO APN OUTDOOR GROUP LIMITED 3.853 3.720 3.58% 3 4 TWE TREASURY WINE ESTATES LIMITED 5.826 5.748 1.36% 7 5 BKW BRICKWORKS LIMITED 15.685 15.608 0.49% 4 6 AQG ALACER GOLD CORP 3.583 3.567 0.45% 6

Negative Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 ORG ORIGIN ENERGY LIMITED 6.685 9.940 – 32.75% 6 2 PAN PANORAMIC RESOURCES LIMITED 0.333 0.450 – 26.00% 3 3 AGO ATLAS IRON LIMITED 0.050 0.067 – 25.37% 3 4 CAB CABCHARGE AUSTRALIA LIMITED 3.803 4.442 – 14.39% 3 5 AWC ALUMINA LIMITED 1.557 1.775 – 12.28% 7 6 S32 SOUTH32 LIMITED 1.929 2.164 – 10.86% 7 7 ARI ARRIUM LIMITED 0.123 0.137 – 10.22% 7 8 NEC NINE ENTERTAINMENT CO. HOLDINGS LIMITED 1.743 1.883 – 7.43% 7 9 WHC WHITEHAVEN COAL LIMITED 1.514 1.589 – 4.72% 8 10 ILU ILUKA RESOURCES LIMITED 8.393 8.679 – 3.30% 7

Earning Forecast

Positive Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 WHC WHITEHAVEN COAL LIMITED 5.825 5.125 13.66% 8 2 GRR GRANGE RESOURCES LIMITED 2.167 2.000 8.35% 3 3 MIN MINERAL RESOURCES LIMITED 45.060 41.660 8.16% 3 4 BKW BRICKWORKS LIMITED 86.825 80.775 7.49% 4 5 NWS NEWS CORPORATION 64.610 61.561 4.95% 6 6 JHC JAPARA HEALTHCARE LIMITED 12.050 11.600 3.88% 4 7 EVN EVOLUTION MINING LIMITED 15.525 15.008 3.44% 6 8 ALL ARISTOCRAT LEISURE LIMITED 37.030 35.873 3.23% 6 9 MTU M2 TELECOMMUNICATIONS GROUP LIMITED 67.017 65.017 3.08% 6 10 NCM NEWCREST MINING LIMITED 65.750 64.925 1.27% 8

Negative Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 PAN PANORAMIC RESOURCES LIMITED – 0.833 1.200 – 169.42% 3 2 PRU PERSEUS MINING LIMITED – 0.001 – 0.201 – 99.50% 6 3 ORG ORIGIN ENERGY LIMITED 36.363 59.119 – 38.49% 6 4 ARI ARRIUM LIMITED 0.858 1.175 – 26.98% 7 5 WSA WESTERN AREAS NL 21.250 28.950 – 26.60% 7 6 SXY SENEX ENERGY LIMITED 0.760 0.989 – 23.15% 7 7 S32 SOUTH32 LIMITED 6.095 7.411 – 17.76% 7 8 MGX Mount Gibson Iron Limited – 2.805 – 3.130 – 10.38% 5 9 BSL BLUESCOPE STEEL LIMITED 21.423 23.535 – 8.97% 7 10 SFR SANDFIRE RESOURCES NL 62.414 67.600 – 7.67% 8

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