Weekly Recommendation, Target Price, Earnings Forecast Changes

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, 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 March 7 to Friday March 11, 2016
Total Upgrades: 8
Total Downgrades: 15
Net Ratings Breakdown: Buy 43.61%; Hold 44.76%; Sell 11.63%

The close correlation between rising share prices and stockbroker downgrades in recommendations for individual stocks was re-established and clearly on display during the week past. As share prices continued their swift swing upwards, FNArena recorded nearly twice as many downgrades as upgrades for the week ending Friday, 11th March 2016; 15 versus 8.

Resources stocks were at the centre of pretty much everything, with brokers flip-flopping on gold's likely outlook, while observing that energy stocks had had a wonderful run, not to mention the likes of Fortescue Metals, Orocobre and Monadelphous.

We need a magnifying glass to spot the occasional industrial: Goodman Group, Regis Healthcare and Webjet were amongst those who received an upgrade in broker rating, and Freedom Foods, QBE Insurance and Ramsay Health Care amongst those who were downgraded.

There's only one table in which resources stocks don't dominate and that's negative adjustments to earnings forecasts. This table is dominated by financial stocks as brokers scaled back their expectations for equity market performance in 2016, which then impacts on the likes of Magellan Financial, Henderson Group and AMP. Insurers are still going through a downgrade cycle.

Despite the omnipresence of resources stocks, recorded changes are no longer "ginormous", though still large on average (in particular given we've just finished reporting season). Independence Group tops the table for positive amendments to forecasts (+41%), followed by Alacer Gold (+24%) and Karoon Gas (+17%).

Programmed Maintenance tops the table for reductions to price targets, having endured a cut of -15.5%, beating Arrium (-14.5%) and Karoon Gas (-14.2%). On the positive side, Mineral Resources enjoyed the largest boost (+13.2%), followed by Northern Star (+12.2%) and Fortescue Metals (+10.4%).

Upgrade

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

Assuming benign operating conditions Credit Suisse believes the company is well positioned to generate around 7.0% earnings growth to FY20.

The appeal to the broker lies more in the ability to sustain earnings in the event of an industrial market downturn. Higher earnings estimates combined with a stronger balance sheet drives an increase in valuation.

Rating is upgraded to Outperform from Neutral. Target is raised to $7.10 from $6.11.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/4

Citi analysts have turned more positive on gold, for now. They anticipate higher bullion prices in Q2 but also believe that improved risk appetite from mid year onwards should favour other assets and reduce gold's attractiveness in the second half of 2016.

That's the base case scenario. Under a different scenario whereby the global economy worsens in H2 and possibly even faces a recession, gold could average US$1400/oz in H2 on the analysts' modeling. Lifting forecasts has had a noticeable impact on Citi's projections for individual gold stocks in Australia.

Newcrest Mining receives an upgrade to Buy from Neutral. Target price jumps to $20.70 from $16.60. Forecasts received a boost.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/1

Citi analysts have turned more positive on gold, for now. They anticipate higher bullion prices in Q2 but also believe that improved risk appetite from mid year onwards should favour other assets and reduce gold's attractiveness in the second half of 2016.

That's the base case scenario. Under a different scenario whereby the global economy worsens in H2 and possibly even faces a recession, gold could average US$1400/oz in H2 on the analysts' modeling. Lifting forecasts has had a noticeable impact on Citi's projections for individual gold stocks in Australia.

Northern Star has been upgraded to Neutral from Sell. Price target lifts to $4.00 from $3.40 on upgraded forecasts.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/1

Citi analysts have turned more positive on gold, for now. They anticipate higher bullion prices in Q2 but also believe that improved risk appetite from mid year onwards should favour other assets and reduce gold's attractiveness in the second half of 2016.

That's the base case scenario. Under a different scenario whereby the global economy worsens in H2 and possibly even faces a recession, gold could average US$1400/oz in H2 on the analysts' modeling. Lifting forecasts has had a noticeable impact on Citi's projections for individual gold stocks in Australia.

OceanaGold has received an upgrade to Neutral from Sell. Price target lifts to $4.10 from $3.36 on higher estimates.

REGIS HEALTHCARE LIMITED ((REG)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/0

The company will acquire a portfolio of assets from Masonic Care Queensland. Morgans considers the net price of $163m for 711 beds at six facilities across four locations is full but notes capital city locations are more valuable and this also includes surplus land for development.

Morgans upgrades its valuation and maintains the 5.0% premium, reflecting the strong track record on development. Rating is upgraded to Add from Hold and the target raised to $5.82 from $5.73.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/2/3

Citi analysts have turned more positive on gold, for now. They anticipate higher bullion prices in Q2 but also believe that improved risk appetite from mid year onwards should favour other assets and reduce gold's attractiveness in the second half of 2016.

That's the base case scenario. Under a different scenario whereby the global economy worsens in H2 and possibly even faces a recession, gold could average US$1400/oz in H2 on the analysts' modeling. Lifting forecasts has had a noticeable impact on Citi's projections for individual gold stocks in Australia.

The rating for Regis Resources has moved to Buy from Neutral with the share price target rising to $3.00 from $2.40. Estimates have been increased.

SOUTH32 LIMITED ((S32)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/3/1

UBS upgrades to Buy from Neutral on an improved earnings outlook. The target is raised to $1.70 from $1.45.

Prices for two of the company's main commodities, alumina and manganese, have rebounded 22% and 58% respectively this year, and the company has also announced a restructure of its manganese business to cut costs.

UBS upgrades earnings forecasts for FY16 and FY17 by 180% and 67% respectively.

WEBJET LIMITED ((WEB)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/3/0

The company stood out among the earnings reports this season, with revenue and earnings growing by 27% and 26% respectively. UBS makes further upward revisions to earnings forecasts to account for improved execution in business-to-business.

The broker continues to envisage upside risk to current guidance and upgrades to Buy from Neutral. Target is raised to $6.40 from $5.85.

Downgrade

AWE LIMITED ((AWE)) Downgrade to Sell from Buy by UBS .B/H/S: 3/2/1

Oil stocks have rallied recently, primarily driven by an increase in oil prices. Brent is now above US$40/bbl for the first time since December.

The catalysts, UBS believes, have been large reductions to global investment, better US growth data and reduced concerns about China's growth. Also, the news that both OPEC and non-OPEC oil producing countries will meet on March 20 has buoyed the market.

UBS retains a view that Brent will still average US$42.50/bbl in 2016, US$55/bbl in 2017, US$70/bbl in 2018, rising to US$75/bbl from 2019.

The large rally in the stock means UBS double downgrades to Sell from Buy. Target is 67c.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/1

Oil stocks have rallied recently, primarily driven by an increase in oil prices. Brent is now above US$40/bbl for the first time since December.

The catalysts, UBS believes, have been large reductions to global investment, better US growth data and reduced concerns about China's growth. Also, the news that both OPEC and non-OPEC oil producing countries will meet on March 20 has buoyed the market.

UBS retains a view that Brent will still average US$42.50/bbl in 2016, US$55/bbl in 2017, US$70/bbl in 2018, rising to US$75/bbl from 2019.

The strong rally in the stock means UBS downgrades to Sell from Neutral. Target is 50c.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 2/4/1

Fortescue's new memorandum of understanding with Vale is ostensibly about blending opportunities, points out Credit Suisse, but the deal does open the door for Vale to take an equity stake of 5-15%. The joint venture will allow both parties to optimise operations, Fortescue suggests, and thus reduce costs. The JV will likely take 6 months to finalise.

The broker calculates a US$1/t potential benefit to Fortescue or around A$90mpa. However, Credit Suisse also expects the current iron ore price rally to fade away by the end of the March Q as Chinese restocking concludes, and forecasts a price of US$35/t in the second half of the year.

Downgrade to Neutral. Target rises to $2.75 from $2.25. 

The iron ore price has rebounded 40% this year, reflecting domestic de-stocking in China and supply interruptions in Brazil. UBS believes the recent strength may have overshot somewhat.

The broker increases Fortescue's target to $3.15 from $2.70 and downgrades to Neutral from Buy as further iron ore price upside is considered limited.

FREEDOM FOODS GROUP LIMITED ((FNP)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

First half results were weaker than Morgans expected, largely because of adverse input costs and FX. Morgans upgrades forecasts to account for recent acquisitions and the proceeds from the sale of A2 Milk ((A2M)) as well as the capital raising.

The broker expects a much stronger second half and FY17, given Pactum Dairy will be consolidated and the recent acquisitions will make a full contribution.

Following the share price appreciation the broker downgrades to Hold from Add. Target is raised to $4.15 from $3.40.

HORIZON OIL LIMITED ((HZN)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/1/1

Oil stocks have rallied recently, primarily driven by an increase in oil prices. Brent is now above US$40/bbl for the first time since December.

The catalysts, UBS believes, have been large reductions to global investment, better US growth data and reduced concerns about China's growth. Also, the news that both OPEC and non-OPEC oil producing countries will meet on March 20 has buoyed the market.

UBS retains a view that Brent will still average US$42.50/bbl in 2016, US$55/bbl in 2017, US$70/bbl in 2018, rising to US$75/bbl from 2019.

The broker downgrades to Neutral from Buy, given the stock's rally. Target is 8c.

MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Hold from Buy by Deutsche Bank and Downgrade to Reduce from Hold by Morgans .B/H/S: 0/2/5

The engineers & contractors sector received a significant valuation re-rating post reporting season, with an average doubling of price/earnings multiples, Deutsche Bank observes.

The broker attributes this to self help initiatives and a recovery in commodity prices. That said, this is not expected to lead to the reinstatement of deferred capital expenditure necessarily.

The broker downgrades to Hold from Buy, given the stock has risen 30% since February 16 and is now trading close to the target. Target is raised to $7.40 from $7.31.

The share price has rallied strongly since the first half result and this near-term strength presents an opportunity to reduce exposure, in Morgans' view.

The broker observes a large proportion of the company's work in the commodities space is mid-to-late cycle. As such, earnings are expected to decline further. The company has guided to FY16 revenue being down 25% on FY15.

The broker makes no changes to forecasts but downgrades the rating to Reduce from Hold. Target price rises to $5.56 from $5.54.

Morgans expects management will pursue options to grow outside of waiting for the cycle to improve but any decisions made now may take several years to make a meaningful impact.

OROCOBRE LIMITED ((ORE)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/1

Reported net loss was a little larger than forecast but nothing to get concerned about according to Citi analysts. They note the company incorporated some FX-related non-cash adjustments.

Citi has nevertheless downgraded the stock to Sell/High Risk from Neutral/High Risk, while leaving the price target unchanged at $2.10. It's a valuation thing (share price has rallied too high, too fast). The analysts emphasise they still like the potential of Olaroz to be a low cost, long life asset as well as the lithium thematic in general.

OIL SEARCH LIMITED ((OSH)) Downgrade to Sell from Neutral by UBS .B/H/S: 4/3/1

Oil stocks have rallied recently, primarily driven by an increase in oil prices. Brent is now above US$40/bbl for the first time since December.

The catalysts, UBS believes, have been large reductions to global investment, better US growth data and reduced concerns about China's growth. Also, the news that both OPEC and non-OPEC oil producing countries will meet on March 20 has buoyed the market.

UBS retains a view that Brent will still average US$42.50/bbl in 2016, US$55/bbl in 2017, US$70/bbl in 2018, rising to US$75/bbl from 2019.

Given the recent rally the stock's rating is downgraded to Sell from Neutral. The $6.50 target is maintained.

OZ MINERALS LIMITED ((OZL)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/6/0

UBS values the 2.8mtpa Carrapateena project at  $530m, factoring in higher cost assumptions than the company does. Nevertheless, the broker is impressed with the unit costs and finds sustaining capex estimates on the low side.

The broker suspects the company might need to reduce capital management initiatives as well as potentially use debt funding and both of these might be taken negatively by the market. This may be a reason why the company is yet to commit to either a 2.8mtpa or a 4.8mtpa scenario.

UBS downgrades to Neutral from Buy, envisaging the valuation is full and the looming capex could take the shine off the stock. Target is raised to $5.50 from $4.91.

PERSEUS MINING LIMITED ((PRU)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/1/2

Citi analysts have turned more positive on gold, for now. They anticipate higher bullion prices in Q2 but also believe that improved risk appetite from mid year onwards should favour other assets and reduce gold's attractiveness in the second half of 2016.

That's the base case scenario. Under a different scenario whereby the global economy worsens in H2 and possibly even faces a recession, gold could average US$1400/oz in H2 on the analysts' modeling. Lifting forecasts has had a noticeable impact on Citi's projections for individual gold stocks in Australia.

Perseus Mining is the only gold producer to receive a rating downgrade; to Sell from Neutral. Price target drops to 34c from 36c.

QBE INSURANCE GROUP LIMITED ((QBE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 5/2/1

Macquarie is forecasting a further loss of market share by listed Australian general insurers to the banks and challenger brands. The broker also notes growth in Australian gross written premiums appears to have bottomed but margin decline has not stabilised.

While QBE is winning NSW CTP share, the broker notes it accounts for only 2.4% of group GWP.

The broker downgrades QBE to Neutral from Outperform as the stock is now trading at a 2.1% premium to the broker's absolute index. Macquarie acknowledges the stock could trade higher with a weaker Australian dollar. Target is reduced to $11.91 from  $12.91.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/3/2

The French government has announced a reduction in the tariff for 2016. The 2.15% reduction for private hospitals operates from March 1. Deutsche Bank remains confident in the medium-term outlook but considers the French business is becoming an increasing drag on earnings.

The tariff reduction was worse than expected and the broker downgrades to Hold from Buy.  Deutsche Bank foresees other near-term risks from the expected change to prostheses funding and pending negotiation with Medibank ((MPL)). Target is lowered to $66.50 from $69.00.

SANTOS LIMITED ((STO)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/2

Oil stocks have rallied recently, primarily driven by an increase in oil prices. Brent is now above US$40/bbl for the first time since December.

The catalysts, UBS believes, have been large reductions to global investment, better US growth data and reduced concerns about China's growth. Also, the news that both OPEC and non-OPEC oil producing countries will meet on March 20 has buoyed the market.

UBS retains a view that Brent will still average US$42.50/bbl in 2016, US$55/bbl in 2017, US$70/bbl in 2018, rising to US$75/bbl from 2019.

In view of the stock's rally UBS downgrades to Neutral from Buy. Target of $4.35 retained.

Total Recommendations	Recommendation Changes
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