Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

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 8 to Friday February 12, 2016
Total Upgrades: 18
Total Downgrades: 9
Net Ratings Breakdown: Buy 43.60%; Hold 43.98%; Sell 12.41%

The week ending Friday, 12th February 2016, was the week when falling share prices finally started to trigger recommendation upgrades from stockbrokers. FNArena registered twice as many upgrades than downgrades for the week; 18 against 9. It was not all purely share price related though with BlueScope Steel and Boral among those receiving upgrades after posting better-than-expected market updates.

Maybe in this context there are more valuable insights to be gained from looking at the nine stocks that were downgraded during the week. Most are connected to market disappointments, including Watpac, Tassal, Rio Tinto and Bank of Queensland. Lifehealthcaregroup is battling question marks given the government's drive to tighten the belt on healthcare costs. Whitehaven Coal continues to face the prospect of further falls in coal prices. AGL Energy and Newcrest Mining have been enjoying solid share price gains. Two out of nine, against 18 downgrades, ain't a bad indicator for how analysts view the Australian stock market at present.

The second week of the domestic February reporting season saw some meaty increases to price targets, with Cochlear on top of the table (+14.5%), followed by JB Hi-Fi and Tassal Group. In line with the challenging times, however, the negative side of the ledger looks a lot more "impressive". Programmed Maintenance, feeling the pain after a disappointing market update, tops the ranking on the negative side (-34%), followed by equally heavy cuts endured by Royal Wolf, Macquarie Group, Ansell and Downer EDI. The obvious observation is that the fall-out from the resources downturn is still being felt across industries that once enjoyed bubble-like benefits.

Investors should note also CommBank sits on position nine for the week, on the negative side, with an average target fall of -3.33%.

A similar picture emerges when looking at changes to earnings estimates. Numerous companies are enjoying a positive boost to expectations with BWP Trust (+26.9%) beating all for the week, followed by Broadspectrum (+15.4%), Goodman Group (+11%) and Transurban (+10%). These are truly big, solid increases, in many cases implemented post positive market updates (which is a clear positive). As one would expect, Cochlear, Boral, Stockland and Cimic Group are included as well.

But the negative side is really showing what significant changes look like. South32 (-854%). That's not a typo. Alacer Gold (-72%). Oz Minerals (-55%). You get the picture. Is it all still resources and related companies? Predominantly, yes. Ansell, having delivered major disappointment with its pre-release and release of financial numbers barely makes it to the list with an average reduction of -5.2%. Maybe that's good news?

Upgrade

ANSELL LIMITED ((ANN)) Upgrade to Hold from Sell by Deutsche Bank and Upgrade to Buy from Neutral by Citi and Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/5/0

First half results fell short of expectations but were consistent with the company's update last week. Deutsche Bank is inclined to look through the impact of FX and weakness in key market but remains wary of the lack of organic sales growth.

While doubting the strategic positioning of the company will have an impact in the absence of a pick up in economic activity the share price weakness and resultant upside to the target means the broker upgrades to Hold from Sell. Target is raised to $17.40 from $16.75.

Post the shock pre-released financial update, management proved remarkably confident of improvement in the second half due to a major contract win plus resolution of operational variances, observe the analysts. They have amended estimates accordingly.

Citi believes the shares look attractive, post sell-down, despite negative momentum operationally. Target drops to $18.56 from $18.64. Upgrade to Buy from Neutral.

Earnings in the first half were in line with the recent update. Credit Suisse is concerned about the reliance on a recovery in the second half.

On balance, the broker is cautious about the magnitude of any earnings recovery and retains an estimate at the lower end of the guidance range, at US98c a share.

Based on the recent share price performance and with current valuations undemanding, the broker moves the rating back to Neutral from Underperform. Target is lowered to $17.60 from $18.00.

First half results were as previously guided. Morgan Stanley was pleased with the transparency the company provided regarding the second half, noting the recent downgrade to guidance was more about FX and restructuring and less about macro sensitivities or long-term fundamentals.

The broker upgrades to Overweight from Equal-weight on the back of an undemanding valuation and an active buy-back. Price target is raised to $18.46 from $14.95. Sector view In-Line.

ALACER GOLD CORP ((AQG)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/1/1

The broker believes the current global theme of macro uncertainty due to China and US growth fears and negative rates in Europe and Japan will mean the gold price will remain supported for now, although the market is more balanced in the medium term. Valuation upgrades for gold miners is on the cards. Industry view: In-Line.

Alacer has not joined in recent outperformance and thus the broker upgrades to Overweight, supported by strong cash backing and a long-life growth project. Target rises to $3.20 from $3.00.

ASX LIMITED ((ASX)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/6/2

First half results beat Credit Suisse's forecasts and the broker upgrades FY16 estimates by 2.0%. The beat was primarily on the back of higher revenue. The result highlights the defensive nature of the stock and the relatively low earnings risk, in the broker's view.

Credit Suisse upgrades to Neutral from Underperform, expecting the stock's premium to remain elevated in the current volatile environment. Target price is raised to $40.50 from $40.00.

BORAL LIMITED ((BLD)) Upgrade to Buy from Sell by Citi .B/H/S: 4/3/0

The interim result was supported by a tax benefit, thus of low quality, but of more importance, perhaps, is that Citi sees Boral as a relatively defensive safe-haven at a time when investors are jittery about a potential slowdown in Australian housing.

Anticipated infrastructure spending should support growth in the years ahead. Post an upgrade to estimates, Citi has put in place a double upgrade to Buy from Sell. Target jumps to $5.93 from $5.45.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Buy from Neutral by UBS .B/H/S: 7/0/0

UBS observes regional steel maker spreads have rebounded, with extreme losses by Chinese mills amid declining demand in China, and with global protectionism increasing and working to reduce Chinese steel output.

While UBS considers it too early to call a bottom, recent events suggest the rebound in spreads is sustainable in the near term. The broker envisages BlueScope benefitting and raises its rating to Buy from Neutral. Target is raised to $5.60 from $4.90.

CENTURIA METROPOLITAN REIT ((CMA)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/0/0

First half earnings were ahead of UBS expectations on stronger leasing outcomes in Canberra. Guidance was re-affirmed but the broker envisages upside risk, with the St Leonards acquisition considered 3.5% accretive to FY16 earnings.

UBS is now more confident in the ability of the company to execute around two key areas of risk, sale of Carlingford assets and the lease up of Canberra.

Rating is upgraded to Buy from Neutral and the target raised to $2.20 from $2.09.

JB HI-FI LIMITED ((JBH)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/4/0

First half results were ahead of Ord Minnett, with sales growth the key driver. The broker upgrades to Accumulate from Hold, confident that sales growth can be sustained, supported by the positive impact on industry structure from the demise of Dick Smith ((DSH)).

Ord Minnett notes margins were soft in the first half but the company has a track record of strong cost management, with scope for medium-term margin expansion as the investment in the Home division comes to an end. Target is raised to $24.50 from $21.00.

NATIONAL STORAGE REIT ((NSR)) Upgrade to Add from Hold by Morgans .B/H/S: 2/2/0

First half results were firm, underpinned by increased storage rents and acquisitions. Upcoming catalysts include the potential acquisition of the Southern Cross centres, with National Storage holding pre-emptive rights.

Morgans believes the stock offers a diversified portfolio, a scalable operating platform and organic growth as well as acquisition opportunities. Rating is upgraded to add from Hold. Target is lowered to $1.67 from $1.68.

NUFARM LIMITED ((NUF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/1

While Credit Suisse's investment case is unchanged, the fall in the share price and no substantial change in the outlook means the rating is now raised to Outperform from Neutral.

The broker expects declines in Brazil should be offset by cost savings and growth in other markets. Trading conditions do not seem to have worsened in the December quarter, the broker observes, judging by results commentary from the company's peers. Target is lowered to $7.70 from $8.00.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/1

The broker believes the current global theme of macro uncertainty due to China and US growth fears and negative rates in Europe and Japan will mean the gold price will remain supported for now, although the market is more balanced in the medium term. Valuation upgrades for gold miners is on the cards. Industry view: In-Line.

The broker upgrades Perseus to Overweight. Target rises to 40c from 32c.

REA GROUP LIMITED ((REA)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Add from Hold by Morgans .B/H/S: 4/4/0

First half earnings were in line with forecasts and Credit Suisse expects Australian revenue growth to remain strong in the second half. Price increases in May/June should support revenue into FY17.

The only negative, in the broker's opinion, was the guidance for cost growth to be higher than revenue growth. Full year estimates are trimmed by 2.0% to reflect this.

REA Group is upgraded to Outperform from Neutral following the recent dip in the share price. The broker believes online property offers significant scope both in the near and longer term. Target is $54.50.

First half results were above Morgans and the market. The broker notes the market disliked the result because management avoided commenting on the planned May price rise and warned that second half margins would be lower.

Morgans is not bothered by either of these issues and believes the current sell off provides the opportunity to buy a long-term growth story at a discount to intrinsic value, a rare event for REA Group.

Morgans upgrades to Add from Hold and raises the target to $56.70 from $55.61.

SONIC HEALTHCARE LIMITED ((SHL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/1/2

Ahead of the first half results Ord Minnett notes risks remain regarding the Medicare Benefits Schedule review but on valuation grounds, and with a market craving growth plus some level of certainty, the rating is upgraded to Accumulate from Hold.

A robust first half result is expected, with guidance maintained and regulatory pressure unlikely to impact. Target is lowered to $20.30 from $20.37.

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/1

First half profit was ahead of UBS forecasts. Although the company has guided to a higher margin confidence in a sustained recovery is expected to depend on how it can address the issues in home and motor insurance.

UBS is yet to be convinced that the company has addressed the short-tail claims challenges but believes the balance of risks has tilted and upgrades to Buy from Neutral. Target is steady at $12.00.

VITACO HOLDINGS LIMITED ((VIT)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/0/0

Citi analysts have upgraded to Buy from Neutral, while leaving everything else untouched, following share price weakness.

The analysts believe this company remains poised to outperform its IPO prospectus projections as its products continue selling strongly in China plus Musashi synergies might be achieved quicker than anticipated.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Neutral from Buy by UBS .B/H/S: 3/4/0

First half results were ahead of Credit Suisse forecasts, underpinned by retail margins and strong generation. The broker expects strong earnings and cash flow will continue and downgrades to Neutral from Outperform with the stock trading in line with valuation.

The broker retains a positive view on the stock and Australian utilities in general. Credit Suisse suspects FY16 earnings could exceed the $650-720m guidance. Target is raised to $19.40 from $18.80.

First half results pleased UBS. Further profit increases are expected in the wholesale electricity and renewables market.

The rating is downgraded to Neutral from Buy on the rise in the share price and removing a small upside to valuation from the Gloucester development now that is off the table.

The broker notes the new $2-3bn utility scale fund which could provide upside. The issue for UBS is that potential partners may worry about the tail risk on 20-25 year assets which only have 5-10 year revenue contracts.

UBS reduces the target to $18.90 from 19.50.

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/5/0

The bank has warned of rising funding costs impacting on margins for the second time and this makes Deutsche Bank wonder whether BOQ is receiving more pressure than the others.

The broker suspects, on the balance of probabilities, that its margin is probably more susceptible compared with the major banks in an environment of widening credit spreads.

The broker believes a re-rating in the short term is unlikely and downgrades to Hold from Buy. Target is lowered to $12.80 from $14.80.

LIFEHEALTHCARE GROUP LIMITED ((LHC)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0

Lifehealthcare's sales are exposed by around 35% to prices set by the government's prostheses lists, where key changes have been proposed to reference pricing, UBS observes.

This could be moderated by the company's specialisation areas such as spinal, which may be less affected, and the opportunity to cut supplier margins. The broker envisages potential upside from the government's examination of anti-competitive structures.

At this point, given the regulatory risk on prostheses pricing and the difficulty in apportioning a potential impact on earnings, UBS downgrades to Neutral from Buy. The target is reduced to $3.00 from $3.95.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 0/3/5

The broker believes the current global theme of macro uncertainty due to China and US growth fears and negative rates in Europe and Japan will mean the gold price will remain supported for now, although the market is more balanced in the medium term. Valuation upgrades for gold miners is on the cards. Industry view: In-Line.

Newcrest has run ahead of the sector to elevated multiples versus global peers. The broker thus suggests taking profits and downgrades to Underweight. Target rises to $14.50 from $13.00.

RIO TINTO LIMITED ((RIO)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/3/0

Post the 2015 financial report, Citi analysts have reduced projected capex & costs as well as the dividend to be paid out in years to come. The immediate result is the company is now expected to be cash-flow positive.

On the negative side, Citi remains convinced of yet lower prices for iron ore in the years ahead. This forecast has pulled the balance into neutral territory, offsetting the positives noted above. The analysts are taking notice of the need to continue lowering costs in the face of continued downward pressures on the price of iron ore.

Citi's reporting this morning is contradictory. It appears the first response has been to leave the rating unchanged at Buy. On second consideration, it appears the rating was downgraded to Neutral with an unchanged price target of $45.

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

First half results were weaker than expected. Morgans expects earnings growth will be stronger in the second half with the De Costi synergies.

The broker suspects the mention of pricing pressure on retail contracts in FY17 spooked the market and, with less than 10% upside to the price target of $4.20, the broker downgrades to Hold from Add.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Hold from Add by Morgans .B/H/S: 4/3/1

Morgans is impressed with the company's ability to protect its cash margin ($14/t) in the first half but expects this will compress towards $10/t in the second half because of lower coal prices.

De-gearing has begin but is expected to remain slow at current prices. The broker suspects the stock is being priced for balance sheet stress but that the market is underestimating the options the company has to de-gear more quickly if necessary.

Morgans downgrades to Hold from Add, believing that investors should wait for the risks to the balance sheet to ease further. Target price drops to 70c from 80c.

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

Morgans downgrades to Hold from Add after strong share price appreciation. Operationally, the mining division is expected to be difficult and, with no material contracts won in the first half, the broker suspects asset carrying values are at risk of impairment in FY16.

Meanwhile, the outlook for the core construction business appears solid and the broker notes the balance sheet is strong, which should enable the company to continue its buy-back program. Target is $1.06.

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