Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features BLUESCOPE STEEL LIMITED, and other companies. For more info SHARE ANALYSIS: BSL

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley 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 November 10 to Friday November 14, 2014
Total Upgrades: 5
Total Downgrades: 12
Net Ratings Breakdown: Buy 42.87%; Hold 39.87%; Sell 17.26%

It should come as no surprise that stock rating downgrades continue outnumbering upgrades as the local share market has bounced swiftly and sharply from a temporary fear-driven sell-off in September-October. Nor should it surprise that the negative side of the ledger carries a heavy contribution from the energy sector, given oil prices have fallen further than most investors and analysts would have expected them to.

For the week ending Friday, November 14, FNArena registered five recommendation upgrades but 12 downgrades, among which are four energy stocks and three iron ore producers.

This also sets the tone for what is happening with price targets and profit expectations. Throw mining services, engineers and contractors into the mix and it should not come as a surprise that negative adjustments look heavier on average than any positive revisions, with retailers also adding to the negative picture.

The positive side is dominated by industrials ex-financials with Qantas and Incitec Pivot in particular enjoying a noticeable reversal in trends.?

Upgrades

BlueScope Steel ((BSL)) upgraded to Hold from Reduce by Morgans. B/H/S: 5/2/1

The broker was cautious about the stock previously, based on how much of the FY14 financial performance was cyclical and how much was related to ACCC intervention on anti-dumping issues. In FY15, despite declining spreads, Morgans finds evidence of cyclical improvement, particularly in Australia, and this should provide a floor to the share price.The broker is not yet bullish on BlueScope but upgrades to Hold from Reduce. Target is unchanged at $5.11.

Computershare ((CPU)) upgraded to Neutral from Sell by UBS. B/H/S: 1/6/1

The company has signalled operating conditions are softer but still expects earnings to be up around 5% in FY15. UBS has been cautious about the weak organic growth profile of the core registry business amid concern that replacing revenue holes with growth and acquisitions is becoming an increasingly capital-intensive task. Valuation now reflects the softer outlook, in the broker's opinion, and the rating is upgraded to Neutral from Sell. Target is raised to $11.50 from $10.70.

Ethane Pipeline ((EPX)) upgraded to Add from Reduce by Morgans. B/H/S: 1/0/0

The company has agreed revised terms with Qenos regarding its sole contract, which removes termination risk and provides revenue until the end of 2018. This is a significant de-risking event for investors, in Morgans' opinion.Distribution guidance is 3.00-3.25c per quarter until end 2018. Broker's target is raised to $1.57 from 77c and the rating is upgraded to Add from Reduce.

Qantas ((QAN)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 5/1/0

Oil and jet fuel prices have declined rapidly since the start of FY15. Deutsche Bank increases earnings forecasts as a result. While it remains early in the recovery process, the broker is pleased to observe the main line is increasing load factors, both domestically and internationally. Rating is upgraded to Buy from Hold and the target to $2.30 from $1.40.

Treasury Wine Estates ((TWE)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 0/3/5

Macquarie transfers coverage to a new analyst and examines the outlook for Australia's wine export market. The broker finds luxury wine exports to China have likely bottomed and look like returning to growth. The low end of the market is slow but the broker notes the rate of value decline is easing and growth could turn positive in coming months. Near-term earnings for Treasury Wine are supported by elevated luxury inventory but caution prevails because of the structural issues with the large commercial category. Rating is upgraded to Neutral from Underperform and the target to $4.70 from $3.90.

Downgrades

ALS ((ALQ)) downgraded to Sell from Neutral by Citi. B/H/S: 0/3/3

Despite the share price halving since its 2012 peak, Citi believes downside earnings risks remain. The pressures are overwhelming management's efforts to manage the business. The valuation appears attractive against global peers but in the broker's opinion that assumes similar market exposures and margin volatility and, unfortunately, that is not the case. The broker transfers coverage to a new analyst and downgrades to Sell from Neutral. Target is reduced to $5.00 from $9.75.

Atlas Iron ((AGO)) downgraded to Sell from Neutral by Citi. B/H/S: 0/4/4

Citi does not believe it has been bearish enough on the iron ore price. Forecasts are downgraded again as demand is weak and supply continues to surge. The broker suspects Atlas Iron's balance sheet is now in a precarious position, having tipped into net debt in FY14 because of the construction of the Mt Weber mine. Rating is downgraded to Sell from Neutral and the target to 14c from 55c.

AusNet Services ((AST)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 0/5/2

One-off costs meant AusNet's interim result fell short of the broker. Cash flow was better than expected nonetheless but still not enough to cover maintenance capex and the dividend, without a DRP, the broker notes. While the interim dividend is as expected, the risk is to the downside for the next distribution. AST has rallied lately in line with the infra/utilities sectors as the bond rate has fallen. This has lifted the share price to the broker's valuation and given there is little chance of dividend upside, the broker downgrades to Underperform, despite raising its target to $1.42 from $1.38.

Caltex Australia ((CTX)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/3/2

Caltex has set some aggressive targets for earnings and cost savings and the broker concedes the company has met every one of them to date. The broker remains extremely positive on the industry as a whole, and suggests surprisingly strong refining margins may lead to capital management opportunity. CTX is a high quality defensive business with further positive news flow to play out, the broker suggests, but a 90% share price rally since December is pushing things just a little too far. Target price lifted to $33.90 from $31.04 but rating downgraded to Neutral.

Fortescue Metals ((FMG)) downgraded to Neutral from Buy by Citi. B/H/S: 3/4/1

Citi does not believe it has been bearish enough on the iron ore price. Forecasts are downgraded again as demand is weak and supply continues to surge. The broker considers Fortescue the fittest of the iron ore plays, with the lowest cost and longest life assets, able to weather the downturn. Rating is downgraded to Neutral from Buy and the target to $3.20 from $4.50.

Isentia ((ISD)) downgrade to Neutral from Buy by UBS. B/H/S: 1/1/0

A number of deals are re-shaping the global media intelligence landscape and UBS explores the potential for Isentia. The broker still believes the company will benefit from Asian growth and has the first mover advantage. The company is unlikely to be an M&A target, in the broker's view. UBS downgrades to Neutral from Buy on valuation grounds after a 45% appreciation in the share price since listing. Target is raised to $3.00 from $2.90.

JB Hi-Fi ((JBH)) downgraded to Equal-weight from Overweight by Morgan Stanley. B/H/S: 3/4/1

The outlook for retail is deteriorating in Morgan Stanley's view as unemployment rises, income growth slows and the housing tailwind eases. The broker expects the headwinds for discretionary retailers are increasing and lowers FY15 estimates. JB Hi-Fi is downgraded to Equal-weight from Overweight on higher capex estimates and weaker gross margins. Target is reduced to $16.00 from $18.00.

M2 Telecommunications ((MU)) downgraded to Neutral from Buy by Citi. B/H/S: 1/4/0

Citi is downgrading to Neutral from Buy although raises the target to $8.60 from $7.82. This follows an upbeat presentation to investors and the broker believes the stock is now fairly priced. While Citi maintains FY15 earnings forecasts, FY16 estimates are raised by 3% to reflect new insights on the speed of the Dodo kiosk roll out. Valuation is rolled forward and the premiums allocated to consumer and business segments in the valuation are increased.

Mount Gibson ((MGX)) downgrade to Sell from Neutral by Citi. B/H/S: 3/3/2

Citi does not believe it has been bearish enough on the iron ore price. Forecasts are downgraded again as demand is weak and supply continues to surge. The broker notes Mount Gibson has already lowered FY15 sales guidance following further instability at Koolan Island and lowers forecasts accordingly. The rating is downgraded to Sell from Neutral and the target to 35c from 65c.

Oil Search ((OSH)) downgraded to Sell from Neutral by Citi. B/H/S: 5/1/1

Citi now believes there is a need for oil supply cuts to offset price declines and OPEC is unlikely to lead. Therefore, the outlook is for current lower pricing to remain in place for longer. The broker downgrades Oil Search to Sell from Neutral as the current share price exceeds the target and lowers the target to $8.01 from $8.80, based on a lower oil price and Australian dollar rate.

Origin Energy ((ORG)) downgraded to Neutral from Buy by Citi. B/H/S: 4/3/1

Citi now believes there is a need for oil supply cuts to offset price declines and OPEC is unlikely to lead. Therefore, the outlook is for current lower pricing to remain in place for longer. With a longer-term supply/demand balance the broker envisages little requirement for new supply sources to be developed. Target price is lowered to $14.92 from $16.92 based on a lower oil price and Australian dollar rate, and the rating is downgraded to Neutral from Buy.

Roc Oil ((ROC)) downgraded to Sell from Neutral by UBS. B/H/S: 1/2/1

Fosun launched its bid in August and has accumulated 80.4%, with the offer now unconditional. The only question in the broker's view is whether it will reach the 90%-plus interest before expiring November 14 at 7pm. UBS expects, if 90% is reached compulsory acquisition will take place. If less, then the stock will stay listed but liquidity will reduce substantially and the share price is expected to fall. The broker recommends shareholders accept the offer ahead of the bid expiry. Target is set at the bid price of 69c and the rating is downgraded to Sell from Neutral.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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