Australia | Jun 06 2006
By Terry Hughes
Fairfax’s (FXJ) trading update has caused most analysts to downgrade their earnings forecasts for the company, but at the same time it has prompted several recommendation upgrades.
The reduced guidance can be attributed to softer advertising markets, particularly in NSW and Victoria, JP Morgan says, and while Merrill Lynch is of the view that investor patience has been tested, they see the company’s valuation as a stand out.
Credit Suisse (Neutral) also sees the stock as "not expensive" but warns that clear proof of a recovery in the advertising market will be necessary before the stock starts to perform.
At Merrills (Buy) they feel this may not be that far away as they maintain the view that the ad market is nearing the bottom, while also pointing out that management has taken the "right steps" in repositioning the company towards the higher growth online market.
JP Morgan (Overweight) is also positive on the stock, viewing it as the "choice strategic asset in the sector in the context of potential media reforms."
UBS also cites the potential change in media ownership laws as reason for its positive stance and with a forecast excess rate of return of 15%, the analysts have upgraded their recommendation to Buy.
Citigroup has also upped its rating, to Hold from Sell as the broker now sees an implied positive total return from the stock compared to their target of $3.65. While not as positive on the stock as some of their peers, the analysts feel investor expectations on several key issues have now moderated and that key risks are now better recognised.
Macquarie is probably the most unimpressed, cutting its target to $3.90 while stating that the display advertising slowdown and the shift to online competitors are expected to continue to put pressure on earnings and therefore the share price.
Deutsche is also less positive. The analysts rate the stock a Hold with a target of $3.80, although they highlight potential corporate activity from changes in media ownership laws as the key upside risk.
All this having been said, the stock closed yesterday at $3.73 and the average target on the stock is now $4.15 and it has four positive recommendations and six neutral.