Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features APA GROUP, and other companies. For more info SHARE ANALYSIS: APA

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 July 27 to Friday July 31, 2015
Total Upgrades: 9
Total Downgrades: 9
Net Ratings Breakdown: Buy 41.83%; Hold 42.12%; Sell 16.05%

Analysts at local stockbrokerages have gone quiet in the lead-up to the August reporting season. Quieter than usual (we're not sure what it means).

The tally for recommendation upgrades and downgrades for the week ending July 31, 2015 still rose to 18 changes, equally divided over the two. This means the eight stockbrokers in the FNArena universe continue to rate more stocks as Buy (or equivalent) than Neutral, albeit only just.

Most changes on the negative side, no matter whether it's rating, target or forecasts, relate to mining and energy. The few non-resources stocks that managed to obtain a presence by the end of the week include APA Group, Macquarie Group, GUD Holding and News Corp.

And now for the corporate results… (ResMed showed how it's done on Friday).

Upgrades

APA Group ((APA)) upgraded to Buy from Neutral by UBS. B/H/S: 5/2/1

The outlook for returns from the utility sector is improving and there is attractive yield on offer. APA Group is the broker's most preferred stock as it offers the best quality yield and growth potential. Hence, the rating is upgraded to Buy from Neutral and the target to $9.56 from $9.45.

Beach Energy ((BPT)) upgraded to Neutral from Underperform by Credit Suisse and to Neutral from Sell by UBS. B/H/S: 1/4/2

FY16 production guidance is down 11% on FY15. The decline is steeper than Credit Suisse expected as capex is also significantly lower. While the company has the ability to draw down on storage at a time when capital is scarce the broker observes this is not sustainable. Following the decline in the share price Credit Suisse upgrades to Neutral from Underperform. UBS observes the company has shown cost discipline in the face of low oil prices and should benefit from drawing on gas in storage in FY16 to meet customer nominations rather than drilling expensive development wells. The broker upgrades to Neutral from Sell after the recent share price decline.

CSL ((CSL)) upgraded to Neutral from Sell by Citi. B/H/S: 6/1/1

Intense competition and reduced prices are already in the haemophilia market. Citi incorporates reduced assumptions and lowers earnings forecasts by 2.0% for FY16 and FY17. However, the broker expects investors will look through to FY17, given the flu business acquisition. Rating is upgraded to Neutral from Sell and target rises to $101.58 from $75.95.

GUD Holdings ((GUD)) upgraded to Buy from Neutral by Citi. B/H/S: 3/2/0

Underlying earnings were at the high end of guidance and slightly above expectations. The broker notes all segments grew revenue in the second half, which augurs well for FY16. Citi upgrades to Buy from Neutral and raises the target to $10.52 from $8.23, to reflect upgraded forecasts, a higher price/earnings ratio and the roll forward of valuation.

Navitas ((NVT)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 1/5/1

FY15 results were solid and above Credit Suisse's forecasts. The broker notes the improvement in university program margins, the first since FY11. Earnings are expected to be flat in FY16, reflecting a decline in university program earnings given there is growth expected in other divisions. Credit Suisse remains bullish on the long-term outlook for international student growth but expects the decline in numbers to accelerate for the next 12-18 months. Rating is upgraded to Neutral from Underperform given the share price decline and the target is reduced to $4.50 from $4.60.

Newcrest Mining ((NCM)) upgraded to Add from Hold by Morgans. B/H/S: 2/1/5

The company's June quarter was strong with Lihir producing 20% more than it was nine months ago. Morgans believes margins should improve further as Cadia ramps up. Rating is upgraded to Add from Hold following recent share price weakness. Target is steady at $14.60.

News Corp ((NWS)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/1/0

Ahead of News Corp's June Q result, the broker has cut its target to $24.16 from $24.83 but upgraded to Outperform following share price weakness. The broker expects News' earnings to rebound after cycling a number of one-off negatives and the curtailing of Education losses. FY16 guidance should be robust and capital management and M&A strategy will remain in focus.

Orica ((ORI)) upgraded to Buy from Neutral by Citi. B/H/S: 2/2/3

Citi considers the current weakness in the share price is a buying opportunity and upgrades to Buy from Neutral. Target is raised to $22.00 from $19.90. While earnings risk remains and may periodically unsettle the share price the broker considers fall in earnings is as much a cyclical phenomenon as it is structural. FY15 is expected to be the low year and the fundamentals of the company's business remain robust, in the broker's view.

Downgrades

ALS ((ALQ)) downgraded to Hold from Add by Morgans. B/H/S: 1/5/2

Guidance for the first half suggest a flat outcome, with life sciences and mineral inspection doing the main job. The real question for Morgans is whether the energy division has been sized right to deliver a profit. Until there is clarity regarding this division the broker expects uncertainties will weigh on the share price. Rating is moved back to Hold from Add, reflecting a change in primary analyst. The broker suspects a material earnings recovery is unlikely before FY17. Target is lowered to $5.58 from $6.89.

Downer EDI ((DOW)) downgraded to Neutral from Buy by Citi. B/H/S: 2/5/1

Citi has trimmed forecasts to slightly below guidance, acknowledging that if this was being missed it would have been disclosed by now. The broker considers the stock is ideally positioned and this has been reflected in the share price over the last nine months. While remaining positive, Citi expects attention will remain on the near-term challenges in market conditions.Hence, the rating is downgraded to Neutral from Buy. Target is lowered to $4.85 from $5.16.

Beadell Resources ((BDR)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 4/1/0

The broker has cut its gold price forecasts for the next 4 years by 8-14% to reflect expected US rate rises and lacklustre demand. This has led to steep earnings cuts across gold miners under coverage, although those exposed to A$ gold fare better. Beadell downgraded to Neutral. Target falls to 14c from 30c.

Medusa Mining ((MML)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 2/1/1

The broker has cut its gold price forecasts for the next 4 years by 8-14% to reflect expected US rate rises and lacklustre demand. This has led to steep earnings cuts across gold miners under coverage, although those exposed to A$ gold fare better. Medusa downgraded to Underperform. Target falls to 60c from $1.00.

Mincor Resources ((MCR)) downgraded to Neutral from Buy by UBS. B/H/S: 0/1/1

The company is a casualty of the weak nickel price, with production in the June quarter below the broker's expectations. This drove cash costs higher. UBS notes the company has kept the option to ramp up quickly should the nickel price rally. FY16 guidance is for just 2-3,000t in the December half. The broker downgrades to Neutral from Buy on the back of production uncertainty. Target is lowered to 50c from 70c.

Northern Star ((NST)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/2/0

The broker has cut its gold price forecasts for the next 4 years by 8-14% to reflect expected US rate rises and lacklustre demand. This has led to steep earnings cuts across gold miners under coverage, although those exposed to A$ gold fare better. Northern Star downgraded to Neutral. Target falls to $2.20 from $2.60.

Regis Resources ((RRL)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 5/3/0

The broker has cut its gold price forecasts for the next 4 years by 8-14% to reflect expected US rate rises and lacklustre demand. This has led to steep earnings cuts across gold miners under coverage, although those exposed to A$ gold fare better. Regis downgraded to Neutral. Target falls to $1.40 from $1.80.

Sandfire Resources ((SFR)) downgraded to Hold from Add by Morgans. B/H/S: 5/2/1

Despite the fact Monty may offer much-needed life extension for the company's mines at DeGrussa, Morgans believes enthusiasm has pushed the stock too far ahead of this potential. The stock now trades at an 8.0% premium to the broker's revised valuation. Hence the rating is downgraded to Hold from Add. Target is raised to $5.60 from $5.12.

Suncorp ((SUN)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 1/5/2

Deutsche Bank envisages negligible top line growth for Australian general insurers over the past year heralds the onset of a cyclical downturn, the impact of which is yet to emerge. Despite this the broker believes Suncorp's bank and life exposure should support slightly stronger group earnings growth compared with its peers in general insurance. The broker downgrades to Hold from Buy rating and retains a $14.30 target.
 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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