Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

By Andrew Nelson

Brokers were a fair bit busier last week than they have been in the few weeks prior when it comes to the upgrading and downgrading their recommendations. It was also a week that upgrades outpaced downgrades, with a total of nine recommendations pushed higher compared to eight that moved lower.

Aristocrat Leisure ((ALL)) was upgraded to Buy from Sell by Citi, the broker noting the company has done a really good job in bringing in some new game design talent which is already paying off in North America. Citi now expects to see decent market share gains, especially in recurring revenue lines. FY15 earnings forecasts were lifted by 20% to reflect the better share. The higher earnings caused a big jump in the price target, giving Citi the headroom to upgrade its call. Broker sentiment for the stock is neutral according to the FNArena Database.

Last week was a busy one for David Jones ((DJS)). The stock was upgraded to Hold from Sell by JP Morgan, while both Macquarie and Citi downgraded their calls to Sell from Hold. JP Morgan has grown a bit more comfortable with the company’s strategic direction and sees signs of growth for FY15. Citi didn’t much like the first result, with cost pressures, weak sales and lower credit card earnings combining to make it difficult for the broker to see any kind of growth over the next couple of years. Macquarie has trouble with the increasingly steep looking valuation and thinks it’ll take just about everything the company has just to keep from going backwards. Sentiment for the stock is neutral.

Macquarie upgraded its call on National Australia Bank ((NAB)) to Buy from Hold. The broker conducted a review of the sector and reported institutional and corporate borrowing appears to be improving in the mining states. Macquarie believes access to credit may become easier in the second half of the year and given NAB is the primary banker to more SMEs than any of the other major banks, it is now the broker's top pick in the sector.

Perseus Mining ((PRU)) was upgraded to Buy from Hold by JP Morgan. The broker admits operating issues at Edikan and delays to the start-up of Sissingue have really put the clamps on sentiment for the stock. And while sentiment cannot be ignored, the broker ultimately believes the issues will have minimal impact and do not alter the longer-term production upside. Given this view of significant longer term value, JP Morgan believes the current share price provides an attractive entry point. Sentiment for the stock is very positive.

Another stock that had a busy week was Premier Investments ((PMV)), with Credit Suisse upgrading its recommendation to Buy from Hold, while Deutsche Bank upgraded to Hold from Sell and Citi downgraded its call to Sell from Hold. Credit Suisse thinks the outlook is finally starting to improve. The broker sees growing upside in the group's domestic mature brands, while international growth also looks promising. Deutsche Bank is starting to see some positive signs for retailers in Australia, but the broker also reckons it's way too early to call a macro improvement. A federal election later in the year further adds to the Deutsche’s cautious stance. Citi is simply expecting nothing in the way of earnings growth in the second half and really out through FY14. Add the flat earnings outlook to a valuation that is looking increasingly stretched and you’ve got a downgrade. Sentiment for the stock is neutral.

Qantas ((QAN)) was upgraded to Buy from Sell by Macquarie, the broker thinks earnings margins are moving back to a more normal rate and has more confidence in the industry outlook, generally. Sentiment is positive. The broker also upgraded Sydney Airport ((SYD)) to Buy from Hold, noting the outlook for international remains solid, while growth in domestic remains in line with expectations. Given the improving performance, the broker thinks the valuation and general prospects are becoming increasingly attractive. Sentiment for the stock is negative.

Rounding out the air travel theme from Macquarie is Virgin Australia ((VAH)). Citi upgraded its recommendation to Buy from Hold, noting that Virgin is increasingly challenging Qantas' position in the business class and regional markets. Sentiment is positive.

TPG Telecom ((TPM)) was upgraded to Buy from Sell by Citi, the broker finding the first half result impressive given solid growth in broadband and mobile. Underlying numbers comfortably beat the broker and the market, while management also upgraded its guidance. FY13-15 net profit forecasts were lifted, with the broker also noting margin pressures have diminished. Sentiment for the stock is positive.

On the downgrade side of the ledger, AMP ((AMP)) was cut to Sell from Hold. Macquarie believes most of the upside from improving economic conditions is already in the price, while ongoing negative Life performance is starting to pose a clear downside risk to expectations. Sentiment shifted to neutral on the downgrade.

CIMB lowered its call on Redflow ((RFX)) to Hold from Buy nothing that while the company has done the hard yards on lowering operating costs, a 60% discount was applied to the valuation case because of delays in securing a strategic partner. Any success with partner negotiations is likely to prompt a review, said CIMB. Sentiment is neutral.

Our last two downgrades come from UBS, the broker lowering its calls on both Bandana Energy ((BND)) and Orica ((ORI)) to Hold from Buy. As far as Bandana goes, the market will be unlikely to pay a valuation based price until there is more clarity on funding and a project go-ahead can be counted on. Thus a funding solution, probably via a sell down to a JV partner, is required if the stock is going to re-rate. The broker thinks the outlook for Orica is still positive, yet it is cautious about margins. The company also reported a number of weather-related impacts on earnings to the tune of $10-$15m, while the operating environment for Minova is not good. As well as downgrading the stock, the broker also cut FY13-14 earnings forecasts.

There were a few significant increases to consensus price targets in the FNArena Database over the course of last week as well, while there really wasn’t much in the way of significant downgrades. TPG Telecom’s ((TPM)) price target was up more than 15.7%, Treasury Wine Estates ((TWE)) saw its average price target lift nearly 14.3% after BA-Merrill Lynch pushed through some higher forecasts, while David Jones’ price target was sitting 13.7% higher.

Average earnings forecasts for TPG Telecom were up by 6.8%, while average forecasts for Drillsearch ((DLS)) and David Jones were both more than 4% higher on the week. Earnings forecasts for APN News & Media ((APN)) were down more than 42%, forecasts for Mount Gibson ((MGX)) were down 14.4%, Alacer Gold ((AQG)) was down 7.5%, Imdex ((IMD)) was 6.1% lower and earnings estimates for Qantas were lower by nearly 5%.

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 (formerly RBS) and UBS.

Total Recommendations	Recommendation Changes
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