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Weekly Recommendation, Target Price, Earnings Forecast Changes

Australia | Sep 28 2015

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

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 September 21 to Friday September 25, 2015
Total Upgrades: 10
Total Downgrades: 11
Net Ratings Breakdown: Buy 46.34%; Hold 41.70%; Sell 11.96%

The Australian share market remains in the grip of ongoing downgrades to global growth estimates and forecasts for commodities prices. Last week Credit Suisse and Macquarie updated their projections and both brokers dominate the tables for changes made to individual stock ratings, valuations and price targets, and earnings growth estimates. Amidst these headlines-grabbing de-ratings, industrial stocks such as IPH Ltd, TPG Telecom, Brickworks and Sydney Airport offer positive offset.

For the week ending Friday, 25 September 2015, FNArena recorded ten upgrades for individual stock ratings and eleven downgrades. As noted, updates by CS and Macquarie heavily dominate the tables. What is remarkable is that, with the one exception that is Macquarie’s downgrade for Arrium, all other downgrades are to Neutral, indicating maybe share prices already are incorporating the flood in negative views and perceptions targeted at commodities and commodities stocks?

On the flipside, industrial companies reporting solid financial performance, featuring prominently in the tables for positive revisions to valuation/targets and earnings estimates, are not being rewarded with Buy ratings. Brickworks received two downgrades (to Neutral) post FY15 release, TPG Telecom received one upgrade (to Neutral) and one downgrade (to Neutral) post result. Citi’s upgrade for Premier Investments, also having reported solid growth, equally did not go higher than Neutral.

As strategists are updating their numbers, Deutsche Bank’s data now indicate the average EPS increase for the ASX200 this year already stands at zero, only three months into the new financial year. With more downgrades likely to follow, given the trend has shown no indication of reversing, it appears the Australian share market is en route for a second successive year of negative EPS growth.

Upgrade

FEDERATION CENTRES ((FDC)) Upgrade to Neutral from Underweight by JP Morgan .B/H/S: 2/3/1

JP Morgan expects the company to experience a delayed benefit from the Novion merger over FY17-18. Once this is incorporated into forecasts, and dilutionary asset sales are cycled, the company should be strongly positioned.

JP Morgan upgrades to Neutral from Underweight and lifts the target to $2.83 from $2.82.

GOODMAN GROUP ((GMG)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/4/0

Credit Suisse has used a sector update on A-REITs to upgrade its rating for Goodman Group. Rolling forward its valuation modeling has led to a higher price target; $6.11 versus $5.91 previously.

Given the share price has tumbled some 13% in recent weeks, the stockbroker thinks it’s time for an upgrade.

INDUSTRIA REIT ((IDR)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/3/0

The 360 Capital Total Return Fund ((TOT)) has taken an 8.4% stake in Industria at an average $1.98ps. Macquarie suggests It is unclear what the fund’s intentions are, but notes it does not have the capital for a full takeover and stakes held by Industria’s manager and related parties prevent a move to compulsory acquisition.

Industria has underperformed of late due to weak leasing at the Brisbane Technology Park and a miss on its FY15 result, but the REIT’s portfolio is still potentially attractive to a number of parties and hence 360’s move may spark M&A interest, Macquarie suggests.

Upgrade to Neutral. Target rises to $1.99 from $1.86.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/1

Credit Suisse commodity analysts recently released their quarterly update on commodities which included more downwards revised price forecasts for most. There’s one sentence most investors with exposure probably don’t want to see: “commodity prices will undershoot to the downside until a supply response can reassert market balance”.

It’s not all bad news only though, with the analysts stating short term, they are a little more positive on iron ore and thermal coals as a supply response is evident, while base metals are seen as behind the curve. Amidst the carnage throughout the sector in terms of impact on profit forecasts, Iluka has received an upgrade to Outperform from Neutral.

Price target unchanged at $7.50.

MYER HOLDINGS LIMITED ((MYR)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/3

Citi has decided it’s time to upgrade to Buy from Neutral. The broker expects Myer’s sales trends to accelerate because the level of discounting at David Jones over the last six months is unsustainable.

Citi believes Myer’s best asset is its low rents in high quality shopping centres in Australia. Myer is trading at an all-time low of $2,392 per square kilometre.

Citi also believes the share price has been depressed by the overhang from the rights issue and this is now factored in. The balance sheet is also in good shape. Target is $1.10.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/4

Macquarie has cut its A$ forecasts by 8-10%. Most gold stocks under coverage enjoy solid earnings forecasts as a result.

Newcrest’s target rises to $15.00 from $12.50. Upgrade to Outperform.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0

Macquarie has cut its A$ forecasts by 8-10%. Most gold stocks under coverage enjoy solid earnings forecasts as a result.

Northern Star’s target rises to $2.80 from $2.40. Upgrade to Outperform.

OZ MINERALS LIMITED ((OZL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 6/1/1

The latest quarterly update on commodities prices has simply delivered yet more negative revisions, with the analysts exclaiming “There is little to like about most commodities over the medium-term, just relative degrees of unloveliness”.

The subsequent update on the copper & gold sector has triggered a few changes in rating. CS retains a relatively flat outlook for gold prices, but has now incorporated even lower prices for copper.

Estimated copper price drops to US$2.40/lb (from US$2.86/lb) for 3Q15, US$2.49/lb (US$2.86/lb) for 4Q15, then to US$2.17/lb 2016 (US$2.65/lb) and US$2.15/lb ($2.59/lb) 2017. OZ Minerals appears to be the only stock that received an upgrade in rating; to Outperform from Neutral. Target $4.50 (was $4.70).

PREMIER INVESTMENTS LIMITED ((PMV)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/5/0

Citi saw a “solid” result. More importantly, the roll-out of success story Smiggle is to accelerate this financial year. Plus the stockbroker believes management is handling the FX headwinds well.

Rating has been upgraded to Neutral from Sell. Target price lifts to $12.00 from $11.50. Earnings forecasts have been pared back, but only slightly so on higher cost assumptions (from the roll-out of Smiggle).

TPG TELECOM LIMITED ((TPM)) Upgrade to Neutral from Underweight by JP Morgan .B/H/S: 2/3/1

It appears JP Morgan has risen from the shadows of its own inactivity and issued an update on TPG Telecom that included an upgrade in rating to Neutral from Underweight.

The new price target, which includes the incorporation of the acquired iiNet, is $9.60 (we had $5.86 from March this year).

See also TPM downgrade.

Downgrade

ARRIUM LIMITED ((ARI)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/5/2

Macquarie has materially reduced steel price forecasts due to weaker demand. Some offset to earnings downgrades is provided by a cut in the broker’s A$ forecast of 8-10%.

Arrium’s target falls to 9c from 12c. Downgrade to Underperform.

BRICKWORKS LIMITED ((BKW)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 1/3/0

Brickworks’ result was operationally solid and slightly better than Macquarie’s forecast. Price growth in building products, particularly bricks, is likely to be the growth driver going forward, the broker suggests.

The outlook for the group’s land development is also better than Macquarie had assumed, leading to earnings forecast upgrades. Target rises to $15.80 from $15.20 but given a strong run in the share price of late, Macquarie downgrades to Neutral.

FY15 results were ahead of expectations. Morgans notes building products benefitted from both volume growth and price rises and this should continue in FY16.

The company is considered more than just a building products business, with options through its cross holding in WH Soul Pattinson ((SOL)). While this makes the stock complicated, the considerable exposure to residential construction offers good leverage, in the broker’s view.

Given the stock is now trading within 10% of the broker’s target the rating is downgraded to Hold from Add. Target falls to $15.50 from $15.86.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0

The latest quarterly update on commodities prices has simply delivered yet more negative revisions, with the analysts exclaiming “There is little to like about most commodities over the medium-term, just relative degrees of unloveliness”.

The subsequent update on the copper & gold sector has triggered a few changes in rating. CS retains a relatively flat outlook for gold prices, but has now incorporated even lower prices for copper.

Estimated copper price drops to US$2.40/lb (from US$2.86/lb) for 3Q15, US$2.49/lb (US$2.86/lb) for 4Q15, then to US$2.17/lb 2016 (US$2.65/lb) and US$2.15/lb ($2.59/lb) 2017. Evolution Mining is one stock that received a downgrade to Neutral. Target $1.19 (was $1.21).

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/2

Credit Suisse commodity analysts recently released their quarterly update on commodities which included more downwards revised price forecasts for most. There’s one sentence most investors with exposure probably don’t want to see: “commodity prices will undershoot to the downside until a supply response can reassert market balance”.

It’s not all bad news only though, with the analysts stating short term, they are a little more positive on iron ore and thermal coals as a supply response is evident, while base metals are seen as behind the curve. Amidst the carnage throughout the sector in terms of impact on profit forecasts, Fortescue Metals has received a downgrade to Neutral from Outperform.

Price target has gained 20c to $2.20.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/2/0

Credit Suisse commodity analysts recently released their quarterly update on commodities which included more downwards revised price forecasts for most. There’s one sentence most investors with exposure probably don’t want to see: “commodity prices will undershoot to the downside until a supply response can reassert market balance”.

It’s not all bad news only though, with the analysts stating short term, they are a little more positive on iron ore and thermal coals as a supply response is evident, while base metals are seen as behind the curve. Amidst the carnage throughout the sector in terms of impact on profit forecasts, Independence Group has received a downgrade to Neutral from Outperform.

Price target tumbles to $3.50.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/1

The latest quarterly update on commodities prices has simply delivered yet more negative revisions, with the analysts exclaiming “There is little to like about most commodities over the medium-term, just relative degrees of unloveliness”.

The subsequent update on the copper & gold sector has triggered a few changes in rating. CS retains a relatively flat outlook for gold prices, but has now incorporated even lower prices for copper.

Estimated copper price drops to US$2.40/lb (from US$2.86/lb) for 3Q15, US$2.49/lb (US$2.86/lb) for 4Q15, then to US$2.17/lb 2016 (US$2.65/lb) and US$2.15/lb ($2.59/lb) 2017. OceanaGold is one stock that received a downgrade to Neutral. Target $2.60 (was $2.80).

PANORAMIC RESOURCES LIMITED ((PAN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

Macquarie has updated its base metal prices forecasts amidst weaker global demand, cutting nickel by 20-30% and copper by 6-12%. All cuts are offset to some extent by an 8-10% cut to the broker’s A$ forecast.

The cuts translate into significant earnings reductions among the miners. Panoramic’s target falls to 30c from 50c, rating downgraded to Neutral.

THE PAS GROUP LIMITED ((PGR)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/1/0

Australian Brands Investment, a US incorporated company, has made a bid for Pas Group at 63c a share. The company has begun to buy shares and will maintain the bid until the close on November 9. It owns 19.23% of the issued stock.

With the potential reduction in liquidity should the acquirer fail to privatise the company and end up with a majority stake, Morgan Stanley downgrades to Equal-weight from Overweight.

The broker considers the turnaround just starting in the business, leaving a longer-term opportunity. Still, there are risks from a weak consumer environment, sharp currency depreciation and underperformance in Metallicus – along with a 19.23% blocking stake.

The In-Line industry view and 60c target are maintained.

TIGER RESOURCES LIMITED ((TGS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Macquarie has updated its base metal prices forecasts amidst weaker global demand, cutting nickel by 20-30% and copper by 6-12%. All cuts are offset to some extent by an 8-10% cut to the broker’s A$ forecast.

The cuts translate into significant earnings reductions among the miners. Tiger’s target falls to 7c from 13c, rating downgraded to Neutral.

TPG TELECOM LIMITED ((TPM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/1

A 33% increase in profit for TPG in FY15 came in just ahead of guidance. It was a strong second half, Macquarie notes, featuring solid cash conversion, although capex was higher than expected. The key for TPG now is the successful integration of iiNet.

Increased capex leads to a target price drop to $10.25 from $10.40. While Macquarie is confident in TPG’s longer term growth prospects, valuation has become a bit rich. Hence a downgrade to Neutral.

See also TPM upgrade.

 

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=90,85,93,64,142,81,160,108&h0=96,107,117,98,91,58,123,103&s0=24,30,15,41,39,39,15,31″ style=”border:1px solid #000000″ />

 

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 FEDERATION CENTRES Neutral Sell JP Morgan
2 GOODMAN GROUP Neutral Sell Credit Suisse
3 ILUKA RESOURCES LIMITED Buy Neutral Credit Suisse
4 INDUSTRIA REIT Neutral Sell Macquarie
5 MYER HOLDINGS LIMITED Buy Neutral Citi
6 NEWCREST MINING LIMITED Buy Neutral Macquarie
7 NORTHERN STAR RESOURCES LTD Buy Neutral Macquarie
8 OZ MINERALS LIMITED Buy Neutral Credit Suisse
9 PREMIER INVESTMENTS LIMITED Neutral Sell Citi
10 TPG TELECOM LIMITED Neutral Sell JP Morgan
Downgrade
11 ARRIUM LIMITED Sell Neutral Macquarie
12 BRICKWORKS LIMITED Neutral Buy Morgans
13 BRICKWORKS LIMITED Neutral Buy Macquarie
14 EVOLUTION MINING LIMITED Neutral Buy Credit Suisse
15 FORTESCUE METALS GROUP LTD Neutral Buy Credit Suisse
16 INDEPENDENCE GROUP NL Neutral Buy Credit Suisse
17 OCEANAGOLD CORPORATION Neutral Buy Credit Suisse
18 PANORAMIC RESOURCES LIMITED Neutral Buy Macquarie
19 THE PAS GROUP LIMITED Neutral Buy Morgan Stanley
20 TIGER RESOURCES LIMITED Neutral Buy Macquarie
21 TPG TELECOM LIMITED Neutral Buy Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 TPM TPG TELECOM LIMITED 17.0% – 17.0% 34.0% 6
2 LLC LEND LEASE CORPORATION LIMITED 100.0% 75.0% 25.0% 6
3 TTS TATTS GROUP LIMITED 43.0% 25.0% 18.0% 7
4 MQA MACQUARIE ATLAS ROADS GROUP 67.0% 50.0% 17.0% 6
5 IPH IPH LIMITED 67.0% 50.0% 17.0% 3
6 MYR MYER HOLDINGS LIMITED – 14.0% – 29.0% 15.0% 7
7 GMG GOODMAN GROUP 43.0% 29.0% 14.0% 7
8 OZL OZ MINERALS LIMITED 63.0% 50.0% 13.0% 8
9 BSL BLUESCOPE STEEL LIMITED 100.0% 88.0% 12.0% 7
10 NCM NEWCREST MINING LIMITED – 13.0% – 25.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 BKW BRICKWORKS LIMITED 25.0% 75.0% – 50.0% 4
2 MIN MINERAL RESOURCES LIMITED 33.0% 50.0% – 17.0% 3
3 EVN EVOLUTION MINING LIMITED 67.0% 83.0% – 16.0% 6
4 IGO INDEPENDENCE GROUP NL 71.0% 86.0% – 15.0% 7
5 SWM SEVEN WEST MEDIA LIMITED 14.0% 25.0% – 11.0% 7
6 TME TRADE ME GROUP LIMITED 33.0% 43.0% – 10.0% 6
7 BRG BREVILLE GROUP LIMITED 50.0% 60.0% – 10.0% 4
8 CAR CARSALES.COM LIMITED 43.0% 50.0% – 7.0% 7
9 CWN CROWN RESORTS LIMITED 43.0% 50.0% – 7.0% 7
10 PRU PERSEUS MINING LIMITED 50.0% 57.0% – 7.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 IPH IPH LIMITED 7.037 5.465 28.76% 3
2 TPM TPG TELECOM LIMITED 9.942 8.802 12.95% 6
3 UGL UGL LIMITED 1.895 1.767 7.24% 6
4 TTS TATTS GROUP LIMITED 3.967 3.840 3.31% 7
5 LLC LEND LEASE CORPORATION LIMITED 17.430 16.964 2.75% 6
6 NCM NEWCREST MINING LIMITED 11.950 11.638 2.68% 8
7 EVN EVOLUTION MINING LIMITED 1.262 1.232 2.44% 6
8 MQA MACQUARIE ATLAS ROADS GROUP 3.753 3.668 2.32% 6
9 SYD SYDNEY AIRPORT HOLDINGS LIMITED 5.961 5.829 2.26% 8
10 MQG MACQUARIE GROUP LIMITED 86.600 84.729 2.21% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 AGO ATLAS IRON LIMITED 0.050 0.067 – 25.37% 3
2 MIN MINERAL RESOURCES LIMITED 5.623 6.968 – 19.30% 3
3 SWM SEVEN WEST MEDIA LIMITED 1.017 1.145 – 11.18% 7
4 IGO INDEPENDENCE GROUP NL 4.157 4.493 – 7.48% 7
5 CWN CROWN RESORTS LIMITED 13.857 14.783 – 6.26% 7
6 ILU ILUKA RESOURCES LIMITED 8.621 9.194 – 6.23% 7
7 ORG ORIGIN ENERGY LIMITED 9.940 10.391 – 4.34% 7
8 DSH DICK SMITH HOLDINGS LIMITED 2.000 2.075 – 3.61% 3
9 BSL BLUESCOPE STEEL LIMITED 5.041 5.219 – 3.41% 7
10 OZL OZ MINERALS LIMITED 4.438 4.575 – 2.99% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 A2M The a2 Milk Company Limited 2.996 0.586 411.26% 3
2 TPM TPG TELECOM LIMITED 39.952 30.250 32.07% 6
3 ILU ILUKA RESOURCES LIMITED 29.675 24.930 19.03% 7
4 GRR GRANGE RESOURCES LIMITED 2.167 2.000 8.35% 3
5 IPH IPH LIMITED 28.300 26.300 7.60% 3
6 BKW BRICKWORKS LIMITED 86.825 80.775 7.49% 4
7 WHC WHITEHAVEN COAL LIMITED 5.825 5.463 6.63% 8
8 EVN EVOLUTION MINING LIMITED 15.525 15.008 3.44% 6
9 NCM NEWCREST MINING LIMITED 66.750 64.925 2.81% 8
10 CTX CALTEX AUSTRALIA LIMITED 207.257 203.571 1.81% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PRU PERSEUS MINING LIMITED – 0.001 – 0.201 – 99.50% 6
2 KAR KAROON GAS AUSTRALIA LIMITED – 5.900 – 12.020 – 50.92% 6
3 AWE AWE LIMITED – 2.254 – 3.540 – 36.33% 7
4 IGO INDEPENDENCE GROUP NL 25.371 39.626 – 35.97% 7
5 WSA WESTERN AREAS NL 25.417 36.100 – 29.59% 7
6 OZL OZ MINERALS LIMITED 30.111 34.597 – 12.97% 8
7 RRL REGIS RESOURCES LIMITED 14.624 16.781 – 12.85% 8
8 S32 SOUTH32 LIMITED 7.228 8.242 – 12.30% 7
9 SXY SENEX ENERGY LIMITED 0.874 0.989 – 11.63% 7
10 SYD SYDNEY AIRPORT HOLDINGS LIMITED 10.686 12.014 – 11.05% 8

Technical limitations

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CHARTS

BKW EVN FMG GMG IGO ILU MYR NCM NST OGC OZL PAN PMV SOL TOT

For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: IGO - IGO LIMITED

For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS 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: OGC - OCEANAGOLD CORP

For more info SHARE ANALYSIS: OZL - OZ MINERALS LIMITED

For more info SHARE ANALYSIS: PAN - PANORAMIC RESOURCES LIMITED

For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED

For more info SHARE ANALYSIS: TOT - 360 CAPITAL REIT