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Weekly Recommendation, Target Price, Earnings Forecast Changes

Australia | May 25 2015

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL

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 May 18 to Friday May 22, 2015
Total Upgrades: 7
Total Downgrades: 5
Net Ratings Breakdown: Buy 39.93%; Hold 42.75%; Sell 17.32%

In the face of a struggling and volatile share market, stockbroking analysts have gone relatively quiet. Upgrades and downgrades are predominantly news-related with Cardno (profit warning) and James Hardie (better than expected result) featuring prominently. Fashion retailer OrotonGroup delivered yet another disappointment in its brand repair strategy.

For the week ending Friday 22nd May 2015, FNArena registered no more than seven upgrades against five downgrades.

Apart from the typical post announcement responses, both banks and energy companies featured prominently. Banks continue to attract attention and divide the financial community post their long overdue correction while oil and gas stocks are equally divisive on volatility in crude oil futures and analysts re-calibrating their medium and longer term price forecasts.

Investors should note energy companies are populating both negative and positive overviews for changes to earnings forecasts for the week.

All in all, most changes implemented during the week are relatively benign, with exception for Cardno. James Hardie clearly surprised which is shown by its top ranking for positive earnings adjustments for the week.

Upgrades

AGL Energy ((AGL)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/3/1

AGL will launch a new strategy next week. With coal a dirty word and New Energy in the form of household solar and batteries growing fast, the broker expects AGL will focus on cost restructuring and efficiencies and small asset divestments. AGL’s low cost coal generation provides flexibility and the company is well placed with regard a recovery in carbon offset prices, and the broker suggests cost discipline should flow through to improved dividends. Target rises to $16.00 from $15.15. Upgrade to Outperform.

Beach Energy ((BPT)) upgraded to Neutral, High Risk from Sell by Citi. B/H/S: 0/4/3

Citi has upgraded oil and FX forecasts. The broker expects the low point in oil will come in the second half of 2015, with supply and demand responses improving thereafter. The sector remains attractive for the broker although the near-term oil price is a risk. The broker considers Beach fairly priced at current levels and upgrades to Neutral/High Risk from Sell/High Risk. Target is $1.10.

Bendigo & Adelaide Bank ((BEN)) upgraded to Neutral from Sell by UBS. B/H/S: 1/5/2

The share price has pulled back since the result in February. UBS maintains its concerns over the impact of mortgage competition on margins and the reliance on the Homesafe house price gains to support the dividend. Still, potential sector net interest margin re-pricing after the bank capital raisings should support the regional banks. Rating is upgraded to Neutral from Sell and the target is unchanged at $12.75.

Northern Star ((NST)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/0

An update from Northern Star highlighted impressive exploration results at Kundana and a possible mine life extension for Kanowna Belle, the broker notes. Drilling at other sites should provide for a material resource upgrade. The company has now ruled out acquisitions given ongoing positive exploration results, and the broker expects production to improve from a weak March quarter. Upgrade to Outperform. Target rises to $2.50 from $2.30.

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

Citi has upgraded oil and FX forecasts. The broker expects the low point in oil will come in the second half of 2015, with supply and demand responses improving thereafter. The sector remains attractive for the broker although the near-term oil price is a risk. Oil Search is now closer to the broker’s target as a result of the recent weakness and is upgraded to Neutral from Sell. Target is raised to $7.27 from $7.21.

Seek Ltd ((SEK)) upgraded to Neutral from Sell by Citi. B/H/S: 3/3/2

Citi reviews the stock in the light of the recent pull back in the share price. Earnings forecasts are lowered by 4.0% for FY15. While near-term momentum is mixed the medium-term growth story regarding domestic placements and international is intact. The broker still envisages downside risk to earnings but the share are trading broadly in line with valuation so the rating is upgraded to Neutral from Sell. Target is reduced to $15.60 from $16.00.

Westpac Banking ((WBC)) upgraded to Buy from Neutral by UBS. B/H/S: 2/3/3

The recent result was softer than expected but the broker observes a significant pull back in the shares, with the stock underperforming peers by 5.0% and the market by 10.0%. The franchise is considered strong with leading asset quality and strong capital generation. Hence, the rating is upgraded to Buy from Neutral. Target is unchanged at $37.

Downgrades

Cardno ((CDD)) downgraded to Sell from Neutral by UBS. B/H/S: 2/3/1

The company has guided to FY15 profit of $48-51m. The mid point of this guidance suggests a decline of 37%. Given the asset-light nature of the business UBS is concerned about the balance sheet and downgrades to Sell from Neutral. The broker believes guidance can only imply that the Australian operations have been structurally impaired by the collapse in the mining cycle while North American operations have felt the pinch of the decline in oil & gas investment. Target is lowered to $1.90 from $2.75.

James Hardie ((JHX)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/5/0

The company has made up ground over the final quarters of FY15 and the results comfortably exceeded the broker’s expectations. JP Morgan still believes James Hardie offers the most attractive and predictable growth profile in the sector but that this is also priced in. As a result the rating is downgraded to Neutral from Overweight. Target is raised to $17.35 from $16.60.

National Australia Bank ((NAB)) downgraded to Neutral from Buy by UBS. B/H/S: 2/4/1

The decision to spin off the UK business and strengthen the balance sheet was difficult, UBS maintains. The market may have rewarded the bank by enabling it to be the best performing major in the year to date but to UBS the stock is no longer cheap. While there is medium term upside potential in business banking, the broker considers it involves significant risk. Rating is downgraded to Neutral from Buy and the target to $35.00 from $40.50.

Newcrest Mining ((NCM)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 0/3/5

JP Morgan observes the Australian gold sector has put in a positive performance for the year to date, but with valuations now full and expectations of a lower gold price for the remainder of the year, the decision has been made to downgrade Newcrest. Rating moves to Underweight from Neutral. No further changes have been made.

Sheffield Resources ((SFX)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0

The pre-feasibility study on Thunderbird confirms the potential of a significant development, although at higher capex with lower production and a delayed start up. The results are disappointing. Macquarie considers it unlikely the project will meet previous expectations. Combined with a bearish outlook for mineral sands, the broker considers the project is significantly more challenging. Rating is downgraded to Neutral from Outperform. Target is reduced to 60c from $1.00.
 

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=79,84,92,75,129,72,167,102&h0=113,106,138,110,110,58,161,124&s0=44,62,17,49,51,45,21,42″ style=”border:1px solid #000000″ />

 

Broker Rating

Order Company New Rating Old Rating Broker
Upgrade
1 AGL ENERGY LIMITED Buy Neutral Macquarie
2 BEACH ENERGY LIMITED Neutral Neutral Citi
3 BENDIGO AND ADELAIDE BANK LIMITED Neutral Sell UBS
4 NORTHERN STAR RESOURCES LTD Buy Neutral Macquarie
5 OIL SEARCH LIMITED Neutral Sell Citi
6 SEEK LIMITED Neutral Sell Citi
7 WESTPAC BANKING CORPORATION Buy Neutral UBS
Downgrade
8 CARDNO LIMITED Sell Neutral UBS
9 JAMES HARDIE INDUSTRIES N.V. Neutral Buy JP Morgan
10 NATIONAL AUSTRALIA BANK LIMITED Neutral Buy UBS
11 NEWCREST MINING LIMITED Sell Neutral JP Morgan
12 SHEFFIELD RESOURCES LIMITED Neutral N/A Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AGL AGL ENERGY LIMITED 38.0% 25.0% 13.0% 8
2 OSH OIL SEARCH LIMITED 88.0% 75.0% 13.0% 8
3 WBC WESTPAC BANKING CORPORATION – 13.0% – 25.0% 12.0% 8
4 BEN BENDIGO AND ADELAIDE BANK LIMITED – 13.0% – 25.0% 12.0% 8
5 BPT BEACH ENERGY LIMITED – 43.0% – 50.0% 7.0% 7
6 AZJ AURIZON HOLDINGS LIMITED 63.0% 57.0% 6.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 IPP IPROPERTY GROUP LIMITED 67.0% 100.0% – 33.0% 3
2 TRS THE REJECT SHOP LIMITED – 50.0% – 25.0% – 25.0% 4
3 CDD CARDNO LIMITED 17.0% 33.0% – 16.0% 6
4 NAB NATIONAL AUSTRALIA BANK LIMITED 14.0% 29.0% – 15.0% 7
5 NCM NEWCREST MINING LIMITED – 63.0% – 50.0% – 13.0% 8
6 FMG FORTESCUE METALS GROUP LTD – 38.0% – 25.0% – 13.0% 8
7 JHX JAMES HARDIE INDUSTRIES N.V. 13.0% 25.0% – 12.0% 8
8 TEN TEN NETWORK HOLDINGS LIMITED – 43.0% – 38.0% – 5.0% 7
9 APN APN NEWS & MEDIA LIMITED 29.0% 33.0% – 4.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 JHX JAMES HARDIE INDUSTRIES N.V. 16.370 14.898 9.88% 8
2 BPT BEACH ENERGY LIMITED 1.003 0.987 1.62% 7
3 FMG FORTESCUE METALS GROUP LTD 1.860 1.834 1.42% 8
4 AZJ AURIZON HOLDINGS LIMITED 5.343 5.277 1.25% 8
5 AGL AGL ENERGY LIMITED 15.694 15.588 0.68% 8
6 OSH OIL SEARCH LIMITED 8.649 8.641 0.09% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CDD CARDNO LIMITED 3.232 3.833 – 15.68% 6
2 IPP IPROPERTY GROUP LIMITED 3.583 3.925 – 8.71% 3
3 TRS THE REJECT SHOP LIMITED 6.325 6.513 – 2.89% 4
4 NAB NATIONAL AUSTRALIA BANK LIMITED 35.643 36.486 – 2.31% 7
5 TEN TEN NETWORK HOLDINGS LIMITED 0.193 0.196 – 1.53% 7
6 WBC WESTPAC BANKING CORPORATION 35.283 35.358 – 0.21% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 JHX JAMES HARDIE INDUSTRIES N.V. 71.731 60.042 19.47% 8
2 XRO XERO LIMITED – 53.091 – 47.121 12.67% 3
3 SGT SINGAPORE TELECOMMUNICATIONS LIMITED 23.291 21.420 8.73% 3
4 STO SANTOS LIMITED 27.996 26.246 6.67% 8
5 OSH OIL SEARCH LIMITED 24.929 23.511 6.03% 8
6 PDN PALADIN ENERGY LTD – 6.168 – 5.953 3.61% 5
7 WPL WOODSIDE PETROLEUM LIMITED 140.593 137.752 2.06% 8
8 ORG ORIGIN ENERGY LIMITED 59.621 59.171 0.76% 8
9 SCG SCENTRE GROUP 22.707 22.564 0.63% 7
10 COH COCHLEAR LIMITED 272.645 271.383 0.47% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 CDD CARDNO LIMITED 24.614 40.957 – 39.90% 6
2 IPP IPROPERTY GROUP LIMITED 1.767 2.000 – 11.65% 3
3 FMG FORTESCUE METALS GROUP LTD 6.895 7.780 – 11.38% 8
4 BPT BEACH ENERGY LIMITED 4.361 4.861 – 10.29% 7
5 AWE AWE LIMITED – 6.567 – 6.933 – 5.28% 6
6 SXY SENEX ENERGY LIMITED – 0.781 – 0.824 – 5.22% 7
7 WOR WORLEYPARSONS LIMITED 88.421 90.084 – 1.85% 7
8 TRS THE REJECT SHOP LIMITED 46.100 46.850 – 1.60% 4
9 GNC GRAINCORP LIMITED 24.542 24.883 – 1.37% 6
10 IGO INDEPENDENCE GROUP NL 41.397 41.826 – 1.03% 7
 

Technical limitations

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CHARTS

AGL BEN BPT CDD JHX NAB NCM NST OSH SEK SFX WBC

For more info SHARE ANALYSIS: AGL - AGL ENERGY LIMITED

For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: CDD - CARDNO LIMITED

For more info SHARE ANALYSIS: JHX - JAMES HARDIE INDUSTRIES PLC

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED

For more info SHARE ANALYSIS: NST - NORTHERN STAR RESOURCES LIMITED

For more info SHARE ANALYSIS: OSH - OIL SEARCH LIMITED

For more info SHARE ANALYSIS: SEK - SEEK LIMITED

For more info SHARE ANALYSIS: SFX - SHEFFIELD RESOURCES LIMITED

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION