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Weekly Recommendation, Target Price, Earnings Forecast Changes

Australia | Oct 19 2015

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

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 October 12 to Friday October 16, 2015
Total Upgrades: 12
Total Downgrades: 9
Net Ratings Breakdown: Buy 46.04%; Hold 42.46%; Sell 11.51%

For the week ending Friday, 16 October 2015, FNArena registered twelve upgrades and nine downgrades in stockbroker ratings for individual stocks. The difference between the two ledgers comes down to Treasury Wines, whose Diageo acquisition triggered three upgrades. All to Neutral. The positive financial impact from the deal offsetting the general assessment Treasury Wine shares trade on a premium valuation which, without a suitor announcing itself, kept most ratings in Sell territory.

Most of the nine downgrades are also to Neutral indicating that, even with major indices in negative territory for calendar 2015, stockbroking analysts find a number of stocks have run too high. Apart from popular smaller sized industrials IPH Ltd and iProperty among the downgrades, there doesn't seem to be much of an underlying theme to be discovered.

Resources stocks are represented on both sides of changes in recommendations, and they continue to dominate both tables for changes to profit estimates. It takes quite some effort to find Macquarie Group and Transurban in between the likes of Panoramic, Grange Resources and Whitehaven Coal in the top ten for positive adjustments to profit forecasts. It's a similar picture on the negative side where a2 Milk tops the table, with CSL and M2 Telecom at the bottom of the list.

Changes in ratings and profit estimates greatly outnumber the sparse amendments to price targets and valuations where both sides of the ledger don't even manage to fill up a top ten. The positive side has iProperty leading a mix of resources stocks and industrials, while the negative side only numbers four stocks of which CSR and Kathmandu are the only ones worth mentioning.

It's going to be interesting to watch whether quarterly market updates and AGMs will add more spice in the week(s) ahead.

Upgrade

BEACH ENERGY LIMITED ((BPT)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/1

Given the recent underperforming share price Citi is upgrading to Buy/High Risk from Neutral/High Risk. The broker considers the growth portfolio uninspiring at current oil prices but the base valuation represents a 31% premium to the current share price.

CEO uncertainty, and asset sales and cost cutting offset by impairments and a conservative growth profile, means the broker finds the outlook mixed in the short term. Still, Citi believes there is potential for creating value. Citi retains a 77c target.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/2

September quarter shipments of 41.9m tonnes at a realised price of US$50/dmt with debt declining has signalled an improved operating performance and UBS upgrades to Buy from Neutral.

Fortescue Metals continues to surprise on cost performance and UBS expects the company can continue to de-leverage. Hence the market is expected to ascribe more value to the equity. Target is raised to $2.85 from $2.30.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/7/0

The company has decided not to pursue further investment in China and, as this was considered a major overhang on the stock, Credit Suisse takes the opportunity to upgrade to Outperform from Neutral.

The broker believes the company can now focus on its core business and capital management. Credit Suisse is confident in the ability to deliver on earnings expectations in FY16 and includes three years of special dividends in forecasts. Target is raised to $5.75 from $5.35.

ALE PROPERTY GROUP ((LEP)) Upgrade to Neutral from Underweight by JP Morgan .B/H/S: 0/1/0

The company has rejected an unsolicited bid at $3.95 a share from its largest shareholder, Caledonia Investments, as undervaluing the company. Caledonia has a 25.8% stake.

The bid price is well above JP Morgan's estimate of fair value but should provide share price support, and an improved offer is considered plausible.

The magnitude of the premium to the recent closing share price possibly reflects assessment of the latent value in the company's under-rented portfolio, JP Morgan observes, and the board probably rejected the offer on a similar basis.

Rating is upgraded to Neutral from Underweight. Target is raised to $3.06 from $3.04.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Overweight from Neutral by JP Morgan .B/H/S: 2/2/1

The company's acquisition of the OnePath New Zealand medical insurance book is a small added bonus in JP Morgan's view. The broker already likes the recent disclosures which signal cash earnings are materially higher than previously assumed.

The broker upgrades to Overweight from Neutral. Target rises to $3.70 from $3.40. JP Morgan considers the stock is attractive on a price/earnings relative basis and also offers growth.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/2/0

UBS maintains its 2016 and 2017 gold price forecast at US$1,250/oz. Any downside from here is expected to be ultimately contained.

A lower assumption for the Australian dollar helps lift valuation but 2015 earnings have been reduced by 11% and 2016 by 9.0% following a cut to copper price forecasts.

The broker upgrades to Neutral from Sell. Target is lifted to $2.40 from $2.30.

PREMIER INVESTMENTS LIMITED ((PMV)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/0

Macquarie has re-reviewed the outlook for what might well be the most exciting overseas expansion in the Australian retail sector (my suggestion, not Macquarie's), while transferring coverage to a new analyst and upgrading the recommendation to Outperform from Neutral. All in one swoop.

Macquarie is now forecasting 3-year EPS CAGR of 12%, on conservative estimates (its own words), primarily driven by overseas expansion. Smiggle is the star performer in the group, key risks are with the older, established brands, says the new analyst. New target $13.14 (was $12.25).

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/6/1

Macquarie has undertaken detailed reserving analysis for Suncorp and introduced a comparative absolute valuation for the stock as the broker does for QBE Insurance ((QBE)). An upgrade to FY16 forecast reserve releases leads to an upgrade in earnings forecasts.

As Suncorp is trading at a discount to Macquarie's absolute valuation, rating is upgraded to Outperform. Target rises to $14.37 from $14.07. The broker nevertheless continues to prefer QBE.

TREASURY WINE ESTATES LIMITED ((TWE)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Neutral from Underperform by Macquarie and Upgrade to Neutral from Sell by UBS .B/H/S: 0/7/0

Treasury Wine will acquire the wine assets, largely US/UK, of Diageo. Credit Suisse observes the acquisition is accretive, on paper at least, but the company must halt, or offset, the long-term volume erosion of these brands.

The company believes it can obtain significant growth for its Californian brands in Asia and Latin America, now that it can access more fruit. Credit Suisse remains to be convinced.

The broker upgrades FY17 forecast by 25% after refreshing currency inputs but notes Treasury Wine has a new exchange rate risk, USD/GDP. A stronger US dollar could erase the very thin margins.

Credit Suisse upgrades to Neutral form Underperform and the target to $6.60 from $5.50.

Treasury Wine has acquired Diageo's luxury and masstige US/UK wine business for $600m, which Macquarie notes represents a significant discount to traditional wine industry multiples. Cost synergies compress the implied multiple further.

Treasury Wine continues to align towards its stated goals in the opportunistic regions of the US and Asia, the broker notes. The bottling capacity included in the acquisition means the company avoids some US$80m in capex.

Strong organic growth, high levels of earnings accretion and a currency tailwind see Macquarie upgrade to Neutral. Target rises to $7.40 from $5.78.

Further to the Diageo US/UK wine business acquisition and rights issue announcement, UBS has reviewed earnings guidance and believes there is upside risk, with the company's turnaround plan seen progressing strongly.

Management has also reiterated a very positive outlook for Asia. Hence, the broker puts through 17-21% in earnings upgrades for FY16-18.

As the earnings outlook continues to improve, UBS upgrades to Neutral from Sell. Target is raised to $7.00 from $5.05.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/2/0

September quarter production was broadly in line with Macquarie's forecasts. Coal pricing remains flat and this is the key catalyst going forward, in the broker's opinion.

While thermal coal prices are depressed, the market for the company's high-quality product appears secure and Macquarie expects supply reductions from marginal producers should provide some price support.

The Maules Creek project appears set to deliver a higher proportion of coking coal than previously envisaged. Macquarie upgrades to Outperform from Neutral and retains a $1.30 target.

Downgrade

BRICKWORKS LIMITED ((BKW)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/1

Macquarie is forecasting a big drop in housing commencements in 2016 as the pace of population growth slows while housing supply continues to grow well above trend. While Australian listed building stocks are in more robust shape now following restructures, and balance sheets are in good shape, the broker has nevertheless downgraded expectations.

Brickworks has seen a solid re-rating in past months but Macquarie expects this to erode as housing activity declines. Downgrade to Underperform. Target falls to $14.70 from $15.80.

CSR LIMITED ((CSR)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 4/2/1

Macquarie is forecasting a big drop in housing commencements in 2016 as the pace of population growth slows while housing supply continues to grow well above trend. While Australian listed building stocks are in more robust shape now following restructures, and balance sheets are in good shape, the broker has nevertheless downgraded expectations.

While CSR has been sold off to historically low valuation, a housing rollover and weak aluminium prices will dampen any rebound possibility, Macquarie believes. Target falls to $2.55 from $4.45. Downgrade to Underperform from Outperform.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/3/0

The company has pre-released strong September quarter cash flows and set the tone for what Deutsche Bank suspects is a strong reporting season in terms of margins in the domestic gold sector.

The full report should provide greater insight into the sustainability of performances, in the broker's opinion.

The broker downgrades to Hold from Buy on valuation and increases its target to $1.40 from $1.30.

GENERATION HEALTHCARE REIT ((GHC)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Morgans suspects FY16 guidance will be reiterated at the upcoming AGM, noting the portfolio continues to expand organically and should deliver enhanced earnings from FY17.

The stock continues to offer a niche investment in defensive health care assets. As the share price has performed well despite recent market volatility the broker moves to a Hold rating from Add. Target is $1.77.

IPH LIMITED ((IPH)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

The company has acquired the assets of Melbourne-based Callinans for $11.5m. The acquisition will be merged with the recent acquisitions and the entity renamed Fisher Adams Kelly Callinans.

This is strategically the right choice, in Morgans' view. IPH's market share now sits around 21%. The broker continues to believe the stock is ticking all the right boxes, with high earnings margins and strong earnings growth.

The broker downgrades to Hold from Add but would become a buyer on stock weakness. Target is raised to $7.19 from $7.06.

IPROPERTY GROUP LIMITED ((IPP)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Morgans goes the extra mile to emphasise it remains positive about the growth prospects for iProperty. It's just that recent share price appreciation means the immediate outlook for the share price no longer warrants an Add rating, hence the downgrade to Hold

OZ MINERALS LIMITED ((OZL)) Downgrade to Neutral from Buy by UBS .B/H/S: 5/2/1

UBS has slashed copper and nickel price forecasts for 2016, with nickel reduced by 31% and copper by 11%. The broker believes, in a falling price environment, a bottom-up approach is more likely to add value than a top-down one.

A lower Australian dollar has helped to mitigate most of the impact from lower copper prices. After a share price re-rating UBS downgrades OZ Minerals to Neutral from Buy. Target is lowered to $4.30 from $4.42.

PROGRAMMED MAINTENANCE SERVICES LIMITED ((PRG)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 3/2/0

The Supreme Court of Victoria has approved the merger with Skilled Group ((SKE)). JP Morgan expects the transaction will be earnings accretive in the mid to high single digits in FY16 and FY17.

The broker remains cautious on the outlook because of the rising exposure to offshore marine services. JP Morgan incorporates the merger into estimates and increases FY16-18 forecasts by an average 8.7%. Target is raised to $3.30 from $2.96. Rating is downgraded to Neutral from Overweight.

TRADE ME GROUP LIMITED ((TME)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/3/1

A turnaround in property and general items may be encouraging but cyclical tailwinds are becoming headwinds in terms of jobs and motor vehicle classifieds, Deutsche Bank observes.

With a moderate medium-term growth outlook the broker now considers the stock is fairly valued and downgrades to Hold from Buy. Target is raised to NZ$3.64 from NZ$3.55.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ALE PROPERTY GROUP Neutral Sell JP Morgan
2 BEACH ENERGY LIMITED Buy Neutral Citi
3 FORTESCUE METALS GROUP LTD Buy Neutral UBS
4 INSURANCE AUSTRALIA GROUP LIMITED Buy Neutral Credit Suisse
5 NIB HOLDINGS LIMITED Buy Neutral JP Morgan
6 OCEANAGOLD CORPORATION Neutral Sell UBS
7 PREMIER INVESTMENTS LIMITED Buy Neutral Macquarie
8 SUNCORP GROUP LIMITED Buy Neutral Macquarie
9 TREASURY WINE ESTATES LIMITED Neutral Sell Macquarie
10 TREASURY WINE ESTATES LIMITED Neutral Sell UBS
11 TREASURY WINE ESTATES LIMITED Neutral Sell Credit Suisse
12 WHITEHAVEN COAL LIMITED Buy Neutral Macquarie
Downgrade
13 BRICKWORKS LIMITED Sell Neutral Macquarie
14 CSR LIMITED Sell Buy Macquarie
15 EVOLUTION MINING LIMITED Neutral Buy Deutsche Bank
16 GENERATION HEALTHCARE REIT Neutral Buy Morgans
17 IPH LIMITED Neutral Buy Morgans
18 IPROPERTY GROUP LIMITED Neutral Buy Morgans
19 OZ MINERALS LIMITED Neutral Buy UBS
20 PROGRAMMED MAINTENANCE SERVICES LIMITED Neutral Buy JP Morgan
21 TRADE ME GROUP LIMITED Neutral Buy Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 OGC OCEANAGOLD CORPORATION 60.0% 40.0% 20.0% 5
2 PMV PREMIER INVESTMENTS LIMITED 33.0% 17.0% 16.0% 6
3 BPT BEACH ENERGY LIMITED 43.0% 29.0% 14.0% 7
4 WHC WHITEHAVEN COAL LIMITED 75.0% 63.0% 12.0% 8
5 ORA ORORA LIMITED 75.0% 71.0% 4.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 IPH IPH LIMITED 33.0% 67.0% – 34.0% 3
2 IPP IPROPERTY GROUP LIMITED 33.0% 67.0% – 34.0% 3
3 CSR CSR LIMITED 43.0% 71.0% – 28.0% 7
4 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 60.0% 80.0% – 20.0% 5
5 AMC AMCOR LIMITED 38.0% 57.0% – 19.0% 8
6 EVN EVOLUTION MINING LIMITED 50.0% 67.0% – 17.0% 6
7 TME TRADE ME GROUP LIMITED 17.0% 33.0% – 16.0% 6
8 ENE ENERGY DEVELOPMENTS LIMITED 20.0% 33.0% – 13.0% 5
9 OZL OZ MINERALS LIMITED 50.0% 63.0% – 13.0% 8
10 MQG MACQUARIE GROUP LIMITED 60.0% 67.0% – 7.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 IPP IPROPERTY GROUP LIMITED 3.783 3.583 5.58% 3
2 EVN EVOLUTION MINING LIMITED 1.378 1.320 4.39% 6
3 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 3.116 3.032 2.77% 5
4 WHC WHITEHAVEN COAL LIMITED 1.550 1.514 2.38% 8
5 IPH IPH LIMITED 7.130 7.037 1.32% 3
6 PMV PREMIER INVESTMENTS LIMITED 12.642 12.493 1.19% 6
7 ENE ENERGY DEVELOPMENTS LIMITED 7.860 7.810 0.64% 5
8 MQG MACQUARIE GROUP LIMITED 86.820 86.600 0.25% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CSR CSR LIMITED 3.734 4.046 – 7.71% 7
2 KMD KATHMANDU HOLDINGS LIMITED 1.627 1.715 – 5.13% 5
3 AMC AMCOR LIMITED 14.101 14.430 – 2.28% 8
4 OZL OZ MINERALS LIMITED 4.373 4.388 – 0.34% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PAN PANORAMIC RESOURCES LIMITED – 3.167 – 0.833 280.19% 3
2 GRR GRANGE RESOURCES LIMITED 2.500 2.167 15.37% 3
3 WHC WHITEHAVEN COAL LIMITED 6.556 5.825 12.55% 8
4 EVN EVOLUTION MINING LIMITED 16.623 15.525 7.07% 6
5 SLR SILVER LAKE RESOURCES LIMITED 4.250 4.000 6.25% 3
6 MQG MACQUARIE GROUP LIMITED 592.057 570.714 3.74% 5
7 NCM NEWCREST MINING LIMITED 67.750 65.750 3.04% 8
8 DLS DRILLSEARCH ENERGY LIMITED 8.768 8.618 1.74% 6
9 TCL TRANSURBAN GROUP 17.436 17.146 1.69% 7
10 OSH OIL SEARCH LIMITED 31.485 31.029 1.47% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 A2M The a2 Milk Company Limited – 0.100 2.996 – 103.34% 3
2 AWE AWE LIMITED – 2.583 – 3.726 – 30.68% 7
3 BCI BC IRON LIMITED – 3.900 – 5.400 – 27.78% 3
4 WSA WESTERN AREAS NL 16.185 21.185 – 23.60% 7
5 ILU ILUKA RESOURCES LIMITED 23.960 29.463 – 18.68% 7
6 STO SANTOS LIMITED 17.606 19.331 – 8.92% 8
7 BHP BHP BILLITON LIMITED 81.127 85.474 – 5.09% 8
8 S32 SOUTH32 LIMITED 5.669 5.945 – 4.64% 7
9 CSL CSL LIMITED 379.360 395.690 – 4.13% 8
10 MTU M2 TELECOMMUNICATIONS GROUP LIMITED 64.600 67.017 – 3.61% 6

Technical limitations

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CHARTS

BKW BPT CSR EVN FMG IAG IPH NHF OZL PMV PRG QBE SUN TWE WHC

For more info SHARE ANALYSIS: BKW - BRICKWORKS LIMITED

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: CSR - CSR LIMITED

For more info SHARE ANALYSIS: EVN - EVOLUTION MINING LIMITED

For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED

For more info SHARE ANALYSIS: IAG - INSURANCE AUSTRALIA GROUP LIMITED

For more info SHARE ANALYSIS: IPH - IPH LIMITED

For more info SHARE ANALYSIS: NHF - NIB HOLDINGS LIMITED

For more info SHARE ANALYSIS: OZL - OZ MINERALS LIMITED

For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED

For more info SHARE ANALYSIS: PRG - PRL GLOBAL LIMITED

For more info SHARE ANALYSIS: QBE - QBE INSURANCE GROUP LIMITED

For more info SHARE ANALYSIS: SUN - SUNCORP GROUP LIMITED

For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED

For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED