Weekly Recommendation, Target Price, Earnings Forecast Changes

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

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, Macquarie, Morgan Stanley, Morgans, Ord Minnett 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 February 29 to Friday March 4, 2016
Total Upgrades: 18
Total Downgrades: 11
Net Ratings Breakdown: Buy 43.59%; Hold 45.04%; Sell 11.37%

Activity levels in the land of stockbrokers tend to slow down significantly once the high volume of responses to companies releasing financial reports in February has run its course. FNArena nevertheless still recorded 18 upgrades and 11 downgrades for individual stock ratings for the week ending Friday, 4th March 2016. The good news is: stockbroking analysts are issuing more upgrades than downgrades despite the share market rallying strongly.

One observation to make is sentiment towards contractors and engineers seems to be improving ever so slightly with the likes of Decmil and Downer EDI (2x) receiving upgrades. Woolworths is on the list too,  as is Super Retail. The latter also features prominently on the list for downgrades with most ratings converging in the Neutral zone.

Gold producers remain a magnet for further downgrades on the back of lots of market attention and rising share prices.

In terms of increases to price targets, resources stocks have taken the lead with Alumina Ltd and South32 on top of the table, but there's room for industrials who reported better-than-expected financial results as well, including Monash IVF, Macquarie Atlas Group, Breville Group and Link Administration Holdings.

The Top 10 for cuts to price targets is filled with companies whose financial market updates in February failed to live up to expectations, with Village Roadshow on top of the table, followed by Peet & Co, ALS Ltd, Super Retail, APN News & Media, Crown Resorts and Woolworths.

The table for positive changes to earnings forecasts contains two surprising leaders this week: Sims Metal and Arrium, followed by Vitaco Holdings, Perseus Mining and Alacer Gold. Changes recorded are simply enormous with number ten on the list, Whitehaven Coal, still enjoying a 20% boost.

The flipside for changes to earnings forecasts is equally matched, however, with Horizon Oil suffering adjustment in excess of -200%, followed by disaster story Slater & Gordon and fellow energy producer Senex Energy. Number ten on the list, AWE Ltd, saw its estimates being lowered by 18.5%.

If last week's activity can be taken as our guide, then the lull post reporting season this year is likely to show a lot more activity than usual. Extreme volatility in share prices is only part of the story.

Upgrade

ALS LIMITED ((ALQ)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/4/3

The company will recognise a $330m impairment charge and has written down its goodwill in the oil & gas business to zero. Credit Suisse is not surprised and believes the financial certainty should be a relief to investors.

The broker envisages a number of emerging catalysts which suggest the share price is bottoming and the re-setting of the asset base and potential for M&A could prompt a stock re-rating.

Rating is upgraded to Neutral from Underperform. Target is $4.00.

ALUMINA LIMITED ((AWC)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/1

Morgan Stanley upgrades to Overweight from Equal-weight, to reflect the improving alumina price which should allow for margin expansion.

The further cost savings and low gearing make the broker comfortable, even if spot price do not improve as expected. Cost improvements from lower energy and caustic inputs are envisaged.

Price target rises to $1.60 from $1.00. Industry view In-Line.

BILLABONG INTERNATIONAL LIMITED ((BBG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/2/0

First half operating earnings were ahead of Ord Minnett. Forecasts are revised up for FY16 and FY17 by 1.2% and 4.5% respectively.

The broker upgrades to Accumulate from Hold, given the steep fall in the share price over recent months. Longer term the broker is upbeat about the business. Target is $2.

DECMIL GROUP LIMITED ((DCG)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/1/0

Ord Minnett upgrades to Hold from Lighten in recognition that the near term share price movement is likely to be positive, driven by a sector re-rating. However, better opportunities are seen elsewhere in the sector.

DOWNER EDI LIMITED ((DOW)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 4/3/0

Ord Minnett upgrades to Hold from Lighten in recognition that the near term share price movement is likely to be positive, driven by a sector re-rating. However, better opportunities are seen elsewhere in the sector.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/3/1

Deutsche Bank has increased US dollar gold price forecasts by an average of 12% over 2016-19. This has been driven by a changed view on global macro conditions, including slowing growth momentum and a rising risk of a US credit default cycle.

As a result Evolution Mining is upgraded to Buy from Hold. Target is raised to $1.90 from $1.60.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/2/2

Harvey Norman's result solidly beat Macquarie, and featured domestic industry-beating sales growth across various categories. The going was tougher offshore but for the first time since the GFC, each of the offshore centres posted a profit.

Harvey Norman was aided in the period by ongoing strength in local housing, the A$, and the demise of Dick Smith. While Macquarie expects housing to slow, the company's efficiency initiatives will act as a buffer. The broker upgrades to Neutral, while retaining a clear preference for JB Hi-Fi ((JBH)). Target rises to $4.65 from $4.05.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/5/1

The health minister has approved a 2016 premium rate increase of 5.6%, well ahead of Credit Suisse expectations. This paves the way for an extended period of inflated profits for the insurers. The main risk is a consumer backlash, the broker observes, as cover downgrades are at record levels.

The broker upgrades earnings forecasts and the rating to Neutral from Underperform as its negative thesis was based on regulation change to rein in the very high profit margins. Target is upgraded to $2.70 from $2.25.

MONASH IVF GROUP LIMITED ((MVF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

Monash IVF's profit fell short of Macquarie but sales well exceeded. While there was some help from acquisitions, organic growth was nevertheless impressive, the broker suggests, and new ventures are beginning to perform.

Strong cash flow provides balance sheet flexibility and earnings growth of 20% is impressive for a company trading on a 12.7x PE, Macquarie believes. While industry growth will likely slow from lofty levels, international expansion, acquisitions and further market share gains should support earnings growth. The broker upgrades to Outperform. Target rises to $2.00 from $1.80.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/0

The health minister has approved a 2016 premium rate increase of 5.6%, well ahead of Credit Suisse expectations. This paves the way for an extended period of inflated profits for the insurers.

The main risk is a consumer backlash, the broker observes, as cover downgrades are at record levels. The broker upgrades its rating to Neutral from Underperform, raising the target to $3.90 from $3.50.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 0/2/2

Deutsche Bank has increased US dollar gold price forecasts by an average of 12% over 2016-19. This has been driven by a changed view on global macro conditions, including slowing growth momentum and a rising risk of a US credit default cycle.

Deutsche Bank upgrades to Hold from Sell. Target is raised to $3.30 from $3.10.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/4/0

First half results were in line with expectations. The broker downgrades forecasts by 3.0% in FY16 and by 11% in FY17 and FY18, largely reflecting marking to market.

Inflows are expected to slow in the second half. Without the benefit of reinvestment of distributions and the PAI raising the broker suspects the company would have experienced net outflows in the first half.

Rating is upgraded to Neutral from Underperform following the fall in the share price. Target is reduced to $6.40 from $7.50.

REGIS HEALTHCARE LIMITED ((REG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/2/0

Regis delivered a solid all-round result, Macquarie suggests, in line with expectation. A 4.8% increase in operating places was translated into 15% earnings growth thanks to a consistent and disciplined strategy.

The development pipeline will ramp up further in the second half and with the payroll tax headwind now cycled, Macquarie believes the outlook for growth is very positive. Upgrade to Outperform. Target unchanged at $6.00.

See also REG downgrade.

SPARK INFRASTRUCTURE GROUP ((SKI)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/1

ACT has handed down its final decision on the NSW appeal. Equity-based issues were dismissed as expected but two material issues were favourable for Spark, Macquarie notes, being gamma and return on debt.

There is further scope from improvement around the resolution of debt, the broker suggests, thus despite the need to sell its Duet ((DUE)) stake, Spark should outperform in the current environment. Thus Macquarie upgrades to Outperform. Target rises to $2.20 from $2.02.

The broker notes AusNet ((AST)) will also benefit from the decision and to a lesser extent Duet, while APA Group ((APA)) will enjoy an indirect benefit.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Lighten from Sell by Ord Minnett .B/H/S: 3/4/1

First half results were below expectations.  Credit Suisse considers the underperformance of Ray's manageable and the valuation risks appear better balanced now. Sports and vehicles are envisaged as solid businesses.

Rating is upgraded to Neutral from Underperform. Target is raised to $8.78 from $8.71.

First half earnings were below Ord Minnett forecasts. Despite concerns about the leisure division and capital allocation the broker notes sports and automobile segments are performing strongly.

Valuation support has emerged, following the recent falls in the share price and the broker upgrades to Lighten from Sell. Ord Minnett wants improvement in the leisure division before becoming more constructive. Target is lowered to $8.50 from $8.75.

See also SUL downgrade.

WOOLWORTHS LIMITED ((WOW)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/2/5

First half results were poor, in Credit Suisse's opinion. The dividend was reduced to 44c but the pay-out ratio should also have been re-set, the broker maintains. The broker notes capital expenditure guidance is vague and new store development should be slower, to free up capital.

The broker moves to Outperform from Neutral, largely based on the expressed, but yet to be realised, intentions of the chairman and incoming CEO. Hence, Credit Suisse acknowledges it is a high risk call.

The target is lowered to $26.13 from $26.22.

XERO LIMITED ((XRO)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/0

After a period of share price weakness Macquarie upgrades to Neutral from Underperform. While the stock was dragged lower along with its peers at the start of 2016 the broker observes its recovery has lagged.

Multiples remain attractive and the company's financial web strategy provides potential upside. Macquarie does not include this strategy in valuation, preferring to await the business model developing. NZ$16.50 target retained.

Downgrade

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

First half results were ahead of Morgans forecasts. FY16 guidance has been updated for sales of $245-255m. Gross margin is now expected to be 60-61%.

The expansion into New Zealand is expected to be in evidence in FY17 earnings. While there are no faults in the results the broker downgrades to Hold from Add rating as the stock is within 10% of  the target. Target falls to $2.85 from $3.05.

BIGAIR GROUP LIMITED ((BGL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/2/0

First half earnings were below Credit Suisse estimates. In the CMS division concerns centre on minor organic growth and a decline in earnings margin in the half. Management has guided to a seasonally stronger second half.

Fixed wireless and community broadband divisions were steady and largely in line. Given the uncertainty, CMS earnings forecasts fall 15-25%, offsetting earnings upgrades of 0-4% for other divisions.

With a new analyst covering the stock Credit Suisse downgrades to Neutral from Outperform. Target is reduced to 70c from 97c.

MEDUSA MINING LIMITED ((MML)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/2

A downgrade to Neutral/High Risk from Buy/High Risk seems but appropriate following a 76% share price gain over the past month. Target 71c.

MAYNE PHARMA GROUP LIMITED ((MYX)) Neutral by UBS .B/H/S: 1/1/0

First half earnings were ahead of UBS estimates. The broker retains a target of $1.38 and Neutral rating which aligns with its conservative outlook around the timing risk regarding the transition from Doryx to its own product launches.

New launches will target markets worth US$180m and are a hoped-for revenue bridge with Doryx likely to have achieved peak sales in the first half, US notes.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/3/1

The share price has risen 37% since its recent low of $3.50, Deutsche Bank observes and, based on valuation, this is implying a US$58/bbl oil price. The broker, as a result of the valuation gap closing to the target, downgrades to Hold from Buy.

The stock remains reliant on an ongoing recovery in the oil price to reduce its debt load and sustain dividends, in the broker's view, and the completion of the APLNG train 2 and the asset sale program remain subject to execution risk. Target is $5.25.

OZ MINERALS LIMITED ((OZL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/5/0

The stock has performed well, exceeding Morgan Stanley's expectations over the past 12 months. Now, with the price target being reached and the share price outperforming the copper price, the broker believes it's time to downgrade to Equal-weight from Overweight.

Copper prices remain the key driver of the stock for the next 6-12 months as work on the Carrapateena pre-feasibility is not due to start until 2017. Target is steady at $5. Industry view: In-Line.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/2/1

Perseus has made an offer for UK-listed Amara Mining at a significant premium, in Morgan Stanley's view. The broker also believes the benefit to Perseus, that of diversifying away from Edikan, will take years to realise.

The broker remains an advocate of miners creating value from project development. However, with Perseus trading close to the current target, and with studies, permits and funding risk still to be navigated, Morgan Stanley downgrades to Equal-weight from Overweight. Target is 40c. Industry view: In-Line.

REGIS HEALTHCARE LIMITED ((REG)) Downgrade to Hold from Add by Morgans .B/H/S: 2/2/0

First half results were slightly weaker than Morgans expected. The second half is expected to be similar to the first. The broker makes minor reductions to forecasts to reflect higher depreciation charges.

Morgans reduces the premium to valuation set in the price target, observing the distance from other listed peers is closing. Target is lowered to $5.73 from $6.00. As the share price is trading within 10% of the target the rating is downgraded to Hold from Add.

See also REG upgrade.

RESOLUTE MINING LIMITED ((RSG)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/1/1

One would be inclined to think Citi's downgrade to Neutral/High Risk from Buy/High Risk is but logical given a 116% share price gain over the past month, but there's more to this story.

Citi analysts anticipate earnings to level and then decline through FY17. This, they suggest, could coincide with a capex spend at Syama.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 3/4/1

Super Retail's adjusted profit fell well short of Macquarie and the result included an impairment of the Ray's Outdoor brand. Once again, solid results from Auto and Sports, along with good cash generation, were outweighed by weak results from Leisure and other smaller and new businesses.

FY16 is shaping up to be another year of subdued growth, Macquarie suggests. While the stock sold off on the result the move only took PE down to the market level and the broker believes investors will want to see improvement before re-rating the company. Downgrade to Neutral. Target falls to $9.00 from $10.60.

First half results fell short of Morgans estimates. Vehicle and sports segments have started the second half well, the broker observes but overall FY16 is expected to be another period of limited earnings growth.

Morgans downgrades to Hold from Add, but considers the share price reaction to the results extreme. Target is reduced to $9.08 from $11.14.

See also SUL upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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