Weekly Recommendation, Target Price, Earnings Forecast Changes

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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 April 20 to Friday April 24, 2015
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 39.90%; Hold 42.05%; Sell 18.04%

The stand-out observation for the week ending Friday, 24 April 2015, is that resources stocks have started to rally from beaten down share price levels while stockbroking analysts are still paring back forecasts and valuations. As they say in the trade: timing is everything!

And so it is that negative adjustments to price targets and estimates are being fully populated by industrial commodities and energy, with few exceptions only such as Nufarm (agri-sector) and Dexus (property). It has to be noted though, the positive side of last week's ledger also sees numerous commodity stocks featuring, including OZ Minerals, Whitehaven Coal and PanAust.

Outside commodities, pharma-retailer Australian Pharmaceuticals features prominently as overall broker optimism received a kick from its financial update, regardless of ongoing regulatory and governmental budgetary uncertainties. Brambles disappointed, but still features on the positive side. Fairfax Media's efforts to highlight strong momentum at Domain continues to push up broker forecasts.

Total upgrades and downgrades for the week were seven versus seven. Note: this is against a background of major indices planning yet another attack at the (so far) elusive 6000.?

Upgrades

Ansell ((ANN)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 2/4/2

Credit Suisse has analysed recent trends, noting the US dollar continues to strengthen against key currencies and if this continues would present translation risks over the medium to longer term as hedges expire. Raw materials pricing remains favourable and is expected to be subdued over the near to medium term. On balance, the broker envisages softer macro economic conditions are largely offset by lower input costs and the benefits of recent acquisitions and new product launches. Rating is upgraded to Neutral from Underperform and the target to $29.90 from $22.30.

Base Resources ((BSE)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 1/1/0

The broker has downgraded its mineral sands price forecasts and hence its Base earnings forecasts. Weak prices, a high debt burden and the export levy dispute with Kenya have led the stock to underperform. These overhangs are likely to remain but operationally Base is performing well, the broker notes. The northern summer is seasonally stronger for mineral sands thus the broker upgrades to Neutral, while dropping its target to 14c.

Fairfax Media ((FXJ)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 2/5/0

After the recent investor briefing, JP Morgan analyses Domain's competitive position and earnings evolution. The broker adopts a more positive outlook on future pricing and considers 2015 market revenue share a key indicator for determining whether Domain will be an improved number two in a strong market or able to take share from REA Group ((REA)). Given this new pricing outlook the rating for Fairfax is upgraded to Neutral from Underweight. Target is raised to $1.01 from 82c.

Fortescue Metals ((FMG)) upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S: 0/6/2

Provided iron ore prices do not collapse Morgan Stanley expects Fortescue will have a few years to work on a solution to its debts. While less than a month ago the broker envisaged the prospect of negative free cash flow the rating is moved back to Equal-weight from Underweight. While the debt issue is not removed, the broker considers it is now more a longer-dated event. Target is raised to $2.14 from $1.65. An In-Line sector view is unchanged.

Nufarm ((NUF)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 0/6/1

Recent rainfall has meant a solid start to Australian winter crops. Credit Suisse is raising second half revenue forecasts to up 5.0%, on higher demand for pre-emergent herbicides. The company's geographic diversity should provide a buffer to weak market conditions and the broker upgrades to Neutral from Underperform, following share price weakness. Target is steady at $7.05.

Suncorp ((SUN)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 2/4/2

Softer medium-term earnings growth is envisaged as general insurance margins normalise but Deutsche Bank believes there is capacity for higher dividend yields. This is based on support for ongoing special dividends and capacity for ordinary pay-outs towards the top end of the 60-80% range in a low growth environment. With franking lifting gross yields to 10.4% and undemanding valuation metrics relative to the broader market the broker upgrades to Buy from Hold. Target is raised to $14.40 from $14.00.

Tabcorp ((TAH)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/2/3

Wagering momentum continues and Credit Suisse is modelling 5.3% organic wagering revenue growth. Reports suggest the industry is growing solidly and Tabcorp is maintaining share. Credit Suisse aligns the Australian risk-free rate with other gaming stocks under coverage and upgrades to Outperform from Neutral. Target is raised to $5.20 from $4.60.

Downgrades

GBST Holdings ((GBT)) downgraded to Reduce from Add by Morgans. B/H/S: 0/0/1

The company faces a mix of positives and negatives, in Morgans' view. Currently the stock is priced for perfection and the broker would prefer to acquire it at lower levels. Rating is downgraded to Reduce from Add. There may be a strong chance the company can sign another 2-3 new customers this year and raise the potential for upgrades but there is also revenue risk from further consolidation in the Australian retail broking market. Target is steady at $5.08.

GWA Group ((GWA)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 0/5/1

Following the sale of Dux and Brivis the company will distribute 28.8c per share to shareholders by way of a capital return and a franked special dividend. The announcement was broadly in line with expectations and, given the shares are trading in line with the target, Deutsche Bank downgrades to Hold from Buy. Target is lowered to $2.49 from $2.61. Deutsche Bank also believes the decision to exit the Gliderol business makes sense, given it is loss making.

Independence Group ((IGO)) downgraded to Neutral from Buy by UBS. B/H/S: 3/3/1

March quarter production was consistent with the broker's expectations. UBS downgrades to Neutral from Buy based on recent share price appreciation. The broker expects the stock to stay a favourite with some investors but considers it fully valued. UBS expects progress on the Stockman project but would not rule out an acquisition of an additional development project or producing asset. Target is reduced to $5.90 from $6.20.

Oil Search ((OSH)) downgraded to Sell from Neutral by Citi. B/H/S: 7/0/1

No discussion, Oil Search has been blessed with a large contingent resource, providing it with the opportunity for high margin production growth, but further share price appreciation would signal investors are blatantly ignoring the risks that remain attached to developing LNG projects. Citi analysts have thus decided to downgrade to Sell from Neutral. Target remains unchanged at $7.21.

Perpetual ((PPT)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 2/6/0

At 9%, Perpetual's March quarter asset under management growth was slightly ahead of the broker's forecast but it was all about appreciation of the market and little to do with new funds inflows, the broker notes. Flows are waning as the market reaches towards historical PE levels. Perpetual's valuation is also getting rich and after a 26% total shareholder return year to date, the broker sees limited further upside. Target rises to $59.50 from $56.45 but rating downgraded to Hold.

Woodside Petroleum ((WPL)) downgraded to Underweight from Equal-weight by Morgan Stanley. B/H/S: 1/4/3

Morgan Stanley revises its rating to Underweight from Equal-weight as Woodside is considered to offer the least leverage to a rising oil price scenario. The broker expects a cyclical recovery in oil prices but from a lower base and over a longer period. The price target is reduced to $34.00 from $38.70. An In-line sector view is retained.

WorleyParsons ((WOR)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/4/1

Macquarie has cut its WTI oil price forecasts (US$/bbl) to US$52 in 2015, down from US$68, and to US$62 in 2016, down from US$79. The service industry is seeing solid front-end work in looking for cost-effective solutions for customers but little in the way of sanctioned projects, the broker notes. Worley is expecting modest declines in oil & gas earnings and the broker has trimmed its forecasts. Despite a solid balance sheet and attractive yield, a mini-rally for Worley sees the broker pull back to Neutral. Target falls to $11.00 from $11.10.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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