Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ

By Andrew Nelson

The Australian share market continues to show a fairly consistent pattern as we move through the local reporting season: share prices continue to rise while stock analysts continue to issue more downgrades than upgrades.

The week past saw ten upgrades being outnumbered by 33 downgrades. Nothing new as this has been the trend since the rally began in 2012.

Alacer Gold ((AQG)) found itself lifted up from Sell to Neutral by analysts at BA-Merrill Lynch. The broker liked the company’s plan to go with an oxide mill rather than the sulphide project, as the former maximises cash flow from each ounce produced at Copler instead of having to increase ounces. There is no change to what is a positive level of sentiment because at the same time BA-ML was upgrading, JP Morgan was downgrading to Sell. In this instance, the broker doesn’t like the economics of the oxide mill and would rather see Alacer overhaul the sulphide project.

ALS Ltd ((ALQ)) was also greeted with an upgrade and downgrade last week. Macquarie lifted its call to Hold from Sell on the belief the company is less exposed to a slowdown in global exploration activity than the typical drillers in the sector. On the other hand, Citi also moved its call to Hold, but in this case down from Buy given a stretched valuation and limited chance of any near term share price catalysts. The stock now sits in the FNArena Database on a negative sentiment setting with two Buys, three Holds and three Sells. The shares are trading at a near 13% premium to the consensus price target.

Bradken ((BKN)) had a very busy week last week, putting out an interim report with an upgraded guidance. Both Macquarie and Credit Suisse upgraded forecasts and their calls to Buy post the release, noting a strong result, a good contribution from Austin Engineering ((ANG)), a healthy order book, lower costs and a generally improved outlook. Conversely, Deutsche Bank downgraded its call to Hold from Buy given flat half on half revenue and a less than hoped for improvement in margins. Earnings forecasts were lifted. The changes leave the stock in positive sentiment territory in the database on four Buys, two Holds and one Sell.

It was also a double up week for Goodman Fielder ((GFF)), with Deutsche Bank upgrading its recommendation to Buy from Hold on an improving outlook and the belief that recent price increases will have a positive effect from the next half onwards. Macquarie downgrades its call to Hold from Buy, noting that while things are improving, it now wants to see these improvements move on to the bottom line before it turns more constructive again. The stock sits in positive sentiment territory in the database on four Buys, two Holds and two Sells.

GWA Group ((GWA)) was lucky to get an upgrade and not a corresponding downgrade, with CIMB lifting its call to Buy from Hold. The broker sees a number of positive catalysts and also believes the recent restructuring announcement will provide a rolling uplift to earnings margins. Sentiment on the stock is neutral. Skilled Group ((SKE)) is next on the list, with Deutsche moving up to Buy from Hold on the back of a strong result that had the broker noting cost cutting initiatives are continuing to yield benefits. The stock rates straight buys in the database, so enjoys a perfect sentiment read.

JP Morgan upgraded Tassal Group ((TGR)) to Hold from Sell after a rise in the Norway fresh salmon price allowed the broker to lift its price target. Sentiment has improved to an even neutral. Credit Suisse lifted Westfield Retail Trust ((WRT)) on the belief that the sector's surge through book value indicates an increasing appetite for yield. With WRT languishing at an 8% discount to net asset value, the broker thinks it’s one of the A-REITS to watch. Sentiment has moved to a slightly more positive setting post the upgrade.

Finally, Macquarie lifted its call on Worley Parsons to Buy from Hold after a rolling forward of the valuation pushed the price target high enough for a valuation call to be made. Sentiment for WOR has moved into positive territory folowing the upgrade, with the database showing three Buys, two Holds and two Sells.

Alumina Ltd ((AWC)) leads off the downgrade portion of the report, with Credit Suisse moving from Buy to Sell on otherwise well received news the company was looking to place 366m shares to CITIC at $1.23 a shares to raise $452m. In the words of the broker: "Balance sheet fixed, but not earnings", with the broker further arguing the equity placement has in fact worsened the earnings outlook for Alumina as it further dilutes existing shareholders. The stock managed to hang on to its positive sentiment read given the four Buys versus two Holds and two Sells recorded in the database.

Ansell ((ANN)) was dropped to Hold from Buy by both Macquarie and Citi on the back of what both brokers found to be an unimpressive 1H effort that fell 17% short of each on the net profit line. The downgrades move the stock into negative sentiment territory. ASX ((ASX)) was chopped to Sell from Hold by CIMB, the broker noting operating conditions remain soft and there are regulatory reviews of structures and payment systems that also create near-term uncertainty. The downgrade pushed the stock deeper into negative sentiment territory.

Beach Energy ((BPT) was dropped down to Sell from Hold by BA Merrill-Lynch, which sees the stock move deeper into negative sentiment. The broker made the moves on concerns about the company’s investment case being too reliant on nascent Australian shale assets. CIMB moved from Hold to Sell on Carsales.com ((CRZ)) on an increasingly expensive looking multiple that is harder to substantiate given the broker’s belief that growth will start to flatten from next year, while display advertising, which has provided much of the cream over the past few years, will have to mature at some point. The stock maintains a positive sentiment footing despite the downgrade.

Commonwealth Bank ((CBA)) also found its way to Sell from Buy on CIMB’s books, the broker thinking the run in the share price after the 1H result release was well overdone. Sentiment moves further into negative territory. Computershare ((CPU)) was cut to Hold from Buy by JP Morgan on the view that any leverage there might be to corporate activity and rising interest rates is now in the share price. A positive sentiment skew is maintained.

CSL ((CSL)) was unfortunate enough to be greeted with two downgrades to Hold from Buy by UBS and BA-ML. Both brokers are of the view that any sort of upside surprise that could still be generated is already in the price. Despite the downgrades, broker sentiment still remains positive.

JP Morgan also downgraded Domino’s Pizza ((DMP)), Downer EDI ((DOW)) and GPT ((GPT)) to Hold from Buy. The problem with Domino’s is that the broker thought last week’s result was of a pretty low quality, the broker citing lower same store sales growth and higher capex. This means more money needs to be spent on new stores just to maintain the current growth trajectory. The downgrade leaves the stock on a neutral footing. Downer was dumped on a valuation call, the broker otherwise happy with the result and the current progress being made. Sentiment remains positive. Lastly, GPT was dropped on a weak 2012 result, with the broker thinking that after the earnings downgrades post result it will be hard for the company to deliver anything but a flat performance versus peers in the year ahead.

UBS has downgraded Harvey Norman ((HVN)) to Hold from Buy, sending the stock deeper into negative territory, the broker noting the stock has outperformed the market by some by some 18% over the month and 15% over the quarter. Credit Suisse made the same call a week prior. IOOF Holdings ((IFL)) went to Sell from Hold on JP Morgan’s books, the broker blaming a run in the share price and the market’s general underestimation of the margin difficulties facing the wealth manager. Sentiment remains positive post the move.

JB HiFi ((JBH)) was hit with a double dose of bad news, downgraded to Hold from Buy by UBS and to Sell from Hold by Credit Suisse. UBS cites the fact shares have outperformed the market by 16% since the end of October, while the broker otherwise sees some scope for positive earnings revisions as long as discounting activity remains reasonable. Credit Suisse made its call on valuation grounds. The combined downgrades have pushed the stock firmly into negative sentiment.

JP Morgan downgraded Jetset Traverlworld ((JET)) on a combination of relative valuation grounds and the fact the company continues to lose market share. The downgrade pushes the stock further onto a negative sentiment footing. Metcash ((MTS)) was lowered to Hold from Buy by Credit Suisse, the broker noting shares are up by 20% since December. Sentiment is now neutral.

Leighton Holdings ((LEI)) was downgraded to Hold from Buy by BA-ML on valuation grounds despite a fairly well received FY profit result. Most brokers seem to agree that at least the near-term outlook remains challenging, while the valuation to most looks a bit full. A negative sentiment footing is maintained. OzMinerals ((OZL)) was cut to Sell from Hold by Deutsche, also a valuation call. The broker thinks the current dividend payment is not sustainable and the company needs to admit this and start preserving some cash. Broker sentiment is now neutral for the stock.

It was a busy week, recommendation wise, for SAI Global ((SAI)). The stock was dropped to Hold from Buy by both Citi and Credit Suisse, while BA-ML went all the way down to Sell from Hold on the heels of the interim result. Merrill’s citied disappointing outlook commentary, while all three noted the continued downgrading of earnings is really starting to become quite bothersome. Citi and Credit Suisse remain fans of the business model on a longer term horizon, but Citi expects near term consensus downgrades and CS notes a tough environment and the fact visibility into the company’s platform issues remains low.

Resource Equipment ((RQL)) was downgraded to Hold from Buy at Macquarie on the view earnings are likely to disappoint from here onwards. The broker remains construction on a mid to longer-term horizon. The prior week CIMB made the same move citing falling utilisation rates, a slowdown in awarding new work and cost blow-outs. The two downgrades leave sentiment at neutral.

Stockland ((SGP)) was cut from Buy to Hold by Deutsche, who blames a combination of impairments, changed capitalised interest policies and cessation of the buyback, which are likely to put a lid on earnings upside. Sentiment lowers to Neutral post the downgrade. STW Communications ((SGN)) also received a downgrade to Hold from Buy as Credit Suisse decided to account for recent strength in the share price. The downgrade mars what was a straight set of Buy calls.

Super Retail ((SUL)) was cut to Sell from Hold by Citi given shares have rallied 22% over the last three months versus the broader market at 11%. Credit Suisse made the same exact move for the same exact reason the week before. Post the downgrades, the stock has fallen to a neutral sentiment read.

Lastly, BA-ML downgraded Toll Holdings ((TOL)) to Hold from Buy, noting first half earnings margins are now expected to fall to 5.4% from 5.8%, while most of the expected earnings growth is already reflected in the share price. Both Macquarie and CIMB downgraded the week prior, the former to Hold and the latter to Sell, given the same concerns about valuation versus limited short term growth prospects. The downgrades have pushed the stock on to a decidedly negative sentiment footing.

There were also quite a few significant revisions to consensus price targets in the FNArena database. Downer’s target is more than 25% higher, STW Communications is up 21.2%, Leighton’s price target is up 17.7%, Skilled up nearly 15% and CBA’s price target has pushed an average of 12.5% higher. On the downside, SAI Global’s target price has dropped nearly 12% on the issues mentioned above.

In terms of significant changes to earnings forecasts, Newcrest ((NCM)) saw its average EPS forecasts lifted by nearly 14%. There were major earnings downgrades pushed through for Yancoal ((YAL)) and Aquarius Platinum ((AQP)), while forecasts for Alacer Gold are down 16.7% and SAI Global has been revised 14% lower.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables below are based on data analysis from the week past concerning these eight equity market experts. The eight experts in casu are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, CIMB (former RBS) and UBS.

Total Recommendations	Recommendation Changes
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