Weekly Recommendation, Target Price, Earnings Forecast Changes

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

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 6 to Friday July 10, 2015
Total Upgrades: 6
Total Downgrades: 4
Net Ratings Breakdown: Buy 41.03%; Hold 42.30%; Sell 16.67%

With international events dominating investor sentiment and the local reporting season drawing closer, stockbroking analysts have gone quiet. For the week ending Friday, July 10 2015, FNArena registered just six recommendation upgrades against four downgrades, with the oil and gas sector in pole position for both.

The same observation applies to changes to valuations/price targets and earnings forecasts. Updates to energy and commodities prices forecasts dictate both tables for positive and negative adjustments, with here and there the odd lonely exception, such as Kathmandu, G8 Education and Insurance Australia Group.

This year's confession session hasn't drawn out a large number of eye-catching profit warnings, but then average forecast in earnings per share for the ASX200 has over the weeks past declined into negative territory. One could conclude from this that expectations in general are low. It has to be pointed out though, the average is low because of sharp negative results anticipated from the resources sector.

All shall be revealed in August, which is only three weeks away.

Upgrades

AWE ((AWE)) upgraded to Buy from Neutral by UBS. B/H/S: 4/2/0

The company's Sugarloaf reserves have increased by 84% and UBS increases valuation for this high quality shale play by 16%. There is more upside if the drilling rate picks up or the potential of the upper Eagle Ford is further delineated. Rating is upgraded to Buy from Neutral on the increased value and the target is raised to $1.45 from $1.40.

Caltex ((CTX)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 2/4/1

Rating has been upgraded to Overweight from Neutral while the target has been lifted to $36.00 from $34.58 as further analysis has shown continued upside from cost savings and other items, while capital management remains a key driver for share price performance. The analysts emphasise there's a significant business repositioning taking place and recent share price weakness has made entry point to gain access more attractive.

See also CTX downgrade.

CSR ((CSR)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 6/1/0

CSR's recent price increases suggests the broker's earnings margin forecasts for building products may be too conservative. Hence, Deutsche Bank upgrades margin estimates to 13%, in line with historical averages. While there may be some volatility in aluminium as housing starts are near all-time highs, the broker has decided to upgrade to Buy from Hold. Target is raised to $4.16 from $3.71.

Nib Holdings ((NHF)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 1/5/0

The company has acquired travel insurance distributor, World Nomads, primarily funded by debt. Credit Suisse estimates the acquisition will be 3.1% accretive in FY16 and 3.6% accretive in FY17. The acquisition fits with the company's strategy of diversifying the earnings base and providing growth opportunities in complementary areas. With the underperformance in the share price recently the broker upgrades to Neutral from Underperform. Target is lowered to $3.65 from $3.75.

Nufarm ((NUF)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/5/1

Nufarm cannot match the patent protection enjoyed by its big global agricultural chemical peers, the broker notes, but Nufarm's comparative lack of profitability suggests significant share price upside on equivalent metrics, assuming the company's cost-saving goals can be met. While those goals are ambitious, the broker is warming to their possible implementation and is assuming 60% of the target can be met. While acknowledging inherent volatility in agricultural earnings, the broker sees sufficient earnings upside potential on a "look-through" basis to upgrade its Nufarm rating to Outperform. Target rises to $8.05 from $7.15.

Sirius Resources ((SIR)) upgraded to Buy from Neutral by Citi. B/H/S: 4/2/0

Stocks within the broker's nickel and copper coverage are trading at steep discounts to base case valuation. This implies the market has not accounted for rising prices, or doubts they will rise. Citi notes Sirius Resources is trading at a premium to spot however, providing some acknowledgment of the bullish fundamentals. Rating is upgraded to Buy, High Risk from Neutral after a strong depreciation of the share price in the wake of the Independence Group ((IGO)) bid. Target is raised to $4.53 from $4.49.

Downgrades

Aurelia Metals ((AMI)) downgraded to Underperform from Outperform by Macquarie and then coverage since ceased. B/H/S: 0/0/0

Aurelia's Hera mine has reached commercial production but its processing plant is struggling to meet design parameters. This brings Aurelia's debt issues into focus, the broker notes. Aurelia has a convertible debt facility with Glencore to fund Hera and the company has issued a conversion notice, but Glencore claims Aurelia is in default — a suggestion Aurelia rejects. On the balance of risks, the broker has elected to cease coverage of the stock.

Beach Energy ((BPT)) downgraded to Sell from Neutral by Citi. B/H/S: 1/2/4

Citi expects a growing shortage of gas versus forecast demand from 2020-2024, depending on the growth of Cooper reserves and the cost of development. For Beach, long-dated growth assets are considered unlikely to be developed for some time and the company is also likely to be negatively impacted from lower Cooper JV production. Rating is downgraded to Sell/High Risk from Neutral/High Risk. Target is reduced to 88c from $1.10.

Caltex ((CTX)) downgraded to Neutral from Buy by Citi. B/H/S: 2/4/1

Citi acknowledges strong refining earnings in the first half but one-off costs have impacted on marketing. First half earnings guidance is 9.0% below the broker's estimates. Given recent share price strength the upside to the target is reduced and, as a result, Citi downgrades to Neutral from Buy. Target is reduced to $35.88 from $36.15. The broker still believes the outlook for growth will not be challenged in the short term.

See also CTX upgrade.

Woodside Petroleum ((WPL)) downgraded to Reduce from Hold by Morgans. B/H/S: 2/2/4

Morgans is worried about retail investors not yet having caught up with the fact that Woodside's interim dividend is about to take a dive given lower oil prices are translating into lower profits and lower cash flows for the company. This, combined with a tepid growth profile, keeps the stockbroker at bay even though Woodside is liked as a high quality business. Target tumbles to $29.73 from $33.86. Downgrade to Reduce from Hold.

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 AWE LIMITED Buy Neutral UBS 2 CALTEX AUSTRALIA LIMITED Buy Neutral JP Morgan 3 CSR LIMITED Buy Neutral Deutsche Bank 4 NIB HOLDINGS LIMITED Neutral Sell Credit Suisse 5 NUFARM LIMITED Buy Neutral Macquarie 6 SIRIUS RESOURCES NL Buy Neutral Citi Downgrade 7 AURELIA METALS LIMITED Sell Buy Macquarie 8 BEACH ENERGY LIMITED Sell Neutral Citi 9 CALTEX AUSTRALIA LIMITED Neutral Buy Citi 10 WOODSIDE PETROLEUM LIMITED Sell Neutral Morgans

Recommendation

Positive Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 AWE AWE LIMITED 67.0% 50.0% 17.0% 6 2 SIR SIRIUS RESOURCES NL 67.0% 50.0% 17.0% 6 3 CSR CSR LIMITED 86.0% 71.0% 15.0% 7 4 CTX CALTEX AUSTRALIA LIMITED 29.0% 14.0% 15.0% 7 5 IGO INDEPENDENCE GROUP NL 57.0% 43.0% 14.0% 7 6 UXC UXC Limited 33.0% 25.0% 8.0% 3 7 AGO ATLAS IRON LIMITED – 60.0% – 67.0% 7.0% 5

Negative Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 KMD KATHMANDU HOLDINGS LIMITED 25.0% 50.0% – 25.0% 4 2 OGC OCEANAGOLD CORPORATION 33.0% 50.0% – 17.0% 6 3 BPT BEACH ENERGY LIMITED – 43.0% – 29.0% – 14.0% 7 4 FMG FORTESCUE METALS GROUP LTD – 63.0% – 50.0% – 13.0% 8 5 QBE QBE INSURANCE GROUP LIMITED 75.0% 88.0% – 13.0% 8 6 NAB NATIONAL AUSTRALIA BANK LIMITED 25.0% 38.0% – 13.0% 8 7 ILU ILUKA RESOURCES LIMITED 38.0% 50.0% – 12.0% 8 8 WEB Webjet Limited 50.0% 60.0% – 10.0% 4

Target Price

Positive Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 AGO ATLAS IRON LIMITED 0.148 0.128 15.63% 5 2 UXC UXC Limited 0.930 0.880 5.68% 3 3 WEB Webjet Limited 3.875 3.800 1.97% 4 4 OGC OCEANAGOLD CORPORATION 2.963 2.913 1.72% 6 5 CSR CSR LIMITED 4.243 4.179 1.53% 7 6 AWE AWE LIMITED 1.570 1.548 1.42% 6 7 SIR SIRIUS RESOURCES NL 4.255 4.215 0.95% 6 8 CTX CALTEX AUSTRALIA LIMITED 33.971 33.783 0.56% 7 9 QBE QBE INSURANCE GROUP LIMITED 14.634 14.603 0.21% 8

Negative Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 BPT BEACH ENERGY LIMITED 1.003 1.034 – 3.00% 7 2 ILU ILUKA RESOURCES LIMITED 9.213 9.313 – 1.07% 8 3 IGO INDEPENDENCE GROUP NL 5.543 5.557 – 0.25% 7 4 NAB NATIONAL AUSTRALIA BANK LIMITED 35.853 35.940 – 0.24% 8

Earning Forecast

Positive Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 FMG FORTESCUE METALS GROUP LTD 11.245 9.550 17.75% 8 2 WPL WOODSIDE PETROLEUM LIMITED 159.070 150.943 5.38% 8 3 KMD KATHMANDU HOLDINGS LIMITED 10.721 10.302 4.07% 4 4 AWC ALUMINA LIMITED 10.478 10.132 3.41% 8 5 CTX CALTEX AUSTRALIA LIMITED 210.016 203.730 3.09% 7 6 STO SANTOS LIMITED 30.985 30.196 2.61% 8 7 PRU PERSEUS MINING LIMITED 6.317 6.174 2.32% 7 8 OZL OZ MINERALS LIMITED 24.628 24.178 1.86% 8 9 RIO RIO TINTO LIMITED 305.325 299.833 1.83% 8 10 CSR CSR LIMITED 29.499 28.999 1.72% 7

Negative Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 GRR GRANGE RESOURCES LIMITED 0.067 – 0.267 – 125.09% 3 2 PBG PACIFIC BRANDS LIMITED 1.800 4.233 – 57.48% 6 3 ACX ACONEX LIMITED – 0.833 – 1.250 – 33.36% 3 4 ERA ENERGY RESOURCES OF AUSTRALIA – 22.488 – 25.988 – 13.47% 3 5 ILU ILUKA RESOURCES LIMITED 24.421 25.796 – 5.33% 8 6 SDA SPEEDCAST INTERNATIONAL LIMITED 13.521 14.082 – 3.98% 3 7 GEM G8 EDUCATION LIMITED 26.660 27.320 – 2.42% 5 8 VRL VILLAGE ROADSHOW LIMITED 28.800 29.467 – 2.26% 3 9 AWE AWE LIMITED – 7.050 – 7.200 – 2.08% 6 10 IAG INSURANCE AUSTRALIA GROUP LIMITED 40.513 41.300 – 1.91% 8

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