Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features EAGERS AUTOMOTIVE LIMITED, and other companies. For more info SHARE ANALYSIS: APE

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 July 18 to Friday July 22, 2016
Total Upgrades: 3
Total Downgrades: 28
Net Ratings Breakdown: Buy 40.80%; Hold 45.19%; Sell 14.01%

Continuously rising share prices have triggered a deluge in broker downgrades for individual listed ASX companies. The week ending Friday, 22nd July 2016 saw no less than 28 downgrades being issued by the eight stockbrokers monitored daily by FNArena, offset by three upgrades only.

Two out of these three, AP Eagers and QBE Insurance, concerned an assessment of too lowly priced assets. The third, Hub24, is on a firm winning streak.

As expected, the 28 downgrades involve a wide range of issues, from companies issuing profit warnings to share prices appreciating too far to investors seemingly ignoring specific company or sector risks. Aurizon Holdings, Cimic Group, Silver Chef and Whitehaven Coal all attracted two downgrades during the week. A number of gold producers was included too.

Whitehaven Coal's increase to price targets tops the table for the week, followed mostly by other resources companies, and outdoor media champions Ooh!Media and APN Outdoor, as well as Aconex. The negative side is much less dominated by resources stocks, with Ainsworth Gaming on top, followed by Clydesdale (CYBG), Cimic Group and Orocobre.

The table for positive changes to profit estimates is equally dominated by resources stocks with BlueScope taking pole position for the week, followed by Whitehaven Coal, Mount Gibson, Seek, Western Areas and Rio Tinto. The negative side is headed by BHP Billiton, beating Karoon Gas, Transurban, South32 and Ooh!Media.

Changes to profit estimates, on both sides, are sizeable as analysts update ahead of the upcoming reporting season in August.

Upgrade

AP EAGERS LIMITED ((APE)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

Credit Suisse believes, in addition to a strong track record, the company through Carzoos and selected acquisitions has two engines of strong growth. Moreover, Carzoos offers potential for significant upside with little downside risk.

Credit Suisse upgrades to Outperform from Neutral. Target is raised to $13.00 from $11.05.

HUB24 LIMITED ((HUB)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0

Ord Minnett observes the retracement in the share price and improved underlying flows suggest it is time to upgrade to Buy from Hold. The target is raised to $4.87 from $4.66.

The broker believes the company is in a solid position to sign new white label deals as it is now positive on monthly cash flow, developing its credibility in transitioning large-scale funds under administration.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/2/0

Macquarie observes a discount to fundamental and peer valuation has opened up ahead of the results, following a 15% fall in the share price since the beginning of June.

The broker estimates QBE will be affected by an adverse discount rate adjustment of around $275m pre tax in the first half but this is reflected in regulatory capital ratios.

The broker upgrades to Outperform from Neutral and the target edges up to $12.11 from $12.00.

Downgrade

ACONEX LIMITED ((ACX)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

Aconex recently signed an enterprise agreement with Exxon, which UBS suggests provides significant validation for its platform, and showcased its new Cost Module, which is already driving wider platform adoption. Good reasons for the share price to have had a good run.

But at 60% year to date, versus 8% for SaaS peers, 13% for the Small Ords and 17% for the Nasdaq, the broker believes it is time to pull back to Neutral. Target rises to $9.00 from $7.20.

ANSELL LIMITED ((ANN)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/5/1

Citi analysts observe a glaring dichotomy between a rising share price and deteriorating operational circumstances. They have decided to downgrade to Sell from Neutral in response.

The analysts believe weaker economic conditions prevail in the company's core markets and they likely herald a poor start to FY17. Updating for FX only further adds to the weaker outlook. Price target tumbles to $17.00 from $17.85.

AURIZON HOLDINGS LIMITED ((AZJ)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Sell from Neutral by Citi .B/H/S: 3/4/1

Macquarie expects FY17 will provide a strong bounce in earnings with additional revenue associated with the UT4 catch up. Meanwhile, volumes in the fourth quarter are expected to be flat.

While Aurizon may surprise on the pace of cost reductions the broker observes the recent rally in the share price has captured the value. Rating is downgraded to Neutral from Outperform as a result. Target is steady at $4.75.

Citi analysts perceived yesterday's market update as a mild positive, triggering a slight increases in estimates, but they are also of the view investors are overpaying, hence the downgrade to Sell from Neutral.

In the analysts' view, further cost savings are increasingly difficult to achieve plus they see earnings risk from UT5. Price target gains 1c to $4.76.

BEADELL RESOURCES LIMITED ((BDR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

Gold equities have enjoyed a strong run up since the Brexit decision and Macquarie combines this with reductions to its Australian dollar forecasts, which removes much of the potential upside to price targets.

The broker downgrades to Neutral from Outperform. Target is steady at 40c.

BLUESCOPE STEEL LIMITED ((BSL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/4/0

Morgan Stanley questions the sustainability of steel spreads but expects this to deliver continued strength in the first half. Although there is potential for upside to consensus expectations in FY17 the broker observes expectations now seem fairer.

Morgan Stanley awaits a more attractive entry point for the stock and pulls back to Equal-weight from Overweight.The broker's target is raised to $8.60 from $8.05. In-Line industry view maintained.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/1

Credit Suisse expects earnings to be flat or lower in the first half. The broker has observed price deflation and deep-value water competition in route and supermarket channels.

Credit Suisse downgrades to Neutral from Outperform given the rise in the share price. Target is $9.80.

CIMIC GROUP LIMITED ((CIM)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/1/4

First half profit was 3% ahead of Macquarie's estimates amid a continuation of the weak trend for revenue with stronger margins.

The broker likes the margin improvement and positive leverage to infrastructure but an improving cash performance which had featured in recent results is absent from the first half.

In the context of a relatively full valuation the broker downgrades to Underperform from Neutral. Target falls to $30.35 from $35.85.

Cimic posted a weak result which both missed most of Deutsche Bank's forecasts and was low in quality given a revaluation of the Sedgman full acquisition. The company is net cash and boasts a strong order book but the broker is cautious on execution risk of the big contracts awarded.

Deutsche has cut earnings forecasts by 5-10% across FY16-20 and lowered its price target to $22.95 from $26.31. The broker considers the stock to be expensive and has downgraded to Sell.

DORAY MINERALS LIMITED ((DRM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Gold equities have enjoyed a strong run up since the Brexit decision and Macquarie combines this with reductions to its Australian dollar forecasts, which removes much of the potential upside to price targets.

The broker downgrades to Underperform from Neutral. Target is reduced to 80c from $1.00.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/4/0

Gold equities have enjoyed a strong run up since the Brexit decision and Macquarie combines this with reductions to its Australian dollar forecasts, which removes much of the potential upside to price targets.

The broker downgrades to Neutral from Outperform. Target is lowered to $3.00 from $3.10.

FANTASTIC HOLDINGS LIMITED ((FAN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/2/0

Ord Minnett downgrades to Hold from Accumulate as the stock has reached the target, which is steady at $2.40.

The July trading update was a positive catalyst but, while the broker is confident in the turnaround, recent management changes are unexplained and the risk/reward is now considered less compelling.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/3/1

Nickel stocks have soared in recent weeks on speculation of a potential ban on nickel ore mining in the Philippines. While this is a risk, Macquarie's forecasts already factor in higher nickel prices.

After the share price rally the broker downgrades to Underperform from Neutral. Target falls to $3.90 from $4.00.

MYOB LIMITED ((MYO)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/2/0

The broker does not expect the company to miss first half prospectus forecasts which call for earnings growth of 13% year on year. The broker observes the business is a quality enterprise with the benefit of an incumbent position.

Still, at the current share price the stock is already trading in line with the broker's valuation and the rating is downgraded to Neutral from Buy. Target is raised to $3.60 from $3.45.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/2

Near-term cost offsets will be hard to obtain, Macquarie contends, given the competitive landscape. The broker lowers TV ad market estimates for the second half and FY17 which drives a material downgrade for Nine Entertainment.

The broker envisages Nine's market share falling to 35.8% in the June half, down from 38.6% a year earlier and this is unlikely to improve in the December half, given Seven ((SWM)) will be broadcasting the Olympics.

Rating is downgraded to Neutral from Outperform. Target is reduced to $1.30 from $1.60.

NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/3

Nothing wrong with Northern Star operationally, it's just the share price that appears to have run well ahead of reality. Citi analysts do acknowledge leverage to the gold price, hence a bullish view on gold and AUD might justify an even higher share price.

Downgrade to Sell from Neutral with an unchanged target of $4.70.

PALADIN ENERGY LTD ((PDN)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/4/0

Citi's decision to downgrade Paladin to Neutral from Buy is predominantly inspired by yet another downgrade to future uranium prices. Citi projects the company will only generate modest operational cash flow over the years ahead.

Which is why selling more equity in Langer Heinrich is but a necessity to satisfy the company's liability towards bond holders to the tune of US$212m in 2017. Target drops to 22c (was 39c). High Risk tag has been maintained.

QUBE HOLDINGS LIMITED ((QUB)) Downgrade to Hold from Add by Morgans .B/H/S: 0/3/0

The ACCC has approved the takeover of Asciano ((AIO)). Morgans already assumed Qube would complete its acquisition of a 50% interest in Patrick Container Terminals. Qube will sell its 6% stake in Asciano to the consortium and then by the 50% equity in PCT.

Morgans increases earnings forecasts by 2-3%, to reflect greater confidence in the stability of the logistics earnings margin. Target lifts to $2.46 from $2.41 and the rating is downgraded to Hold from Add.

ST BARBARA LIMITED ((SBM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/1

Gold equities have enjoyed a strong run up since the Brexit decision and Macquarie combines this with reductions to its Australian dollar forecasts, which removes much of the potential upside to price targets.

The broker downgrades to Neutral from Outperform. Target is steady at $3.60.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/4/1

Gold equities have enjoyed a strong run up since the Brexit decision and Macquarie combines this with reductions to its Australian dollar forecasts, which removes much of the potential upside to price targets.

Sandfire's share price has rallied 25% in just one week, Macquarie observes. Hence, the rating is downgraded to Neutral from Underperform. Target is steady at $6.10.

SILVER CHEF LIMITED ((SIV)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Silver Chef's FY17 earnings guidance is below Macquarie's expectations and earnings estimates are reduced by 12%. FY16 is unchanged.

Macquarie remains positive about the growth outlook for hospitality, and also GoGetta but has concerns around the increased provisioning.

With the stock trading in line with the revised price target the rating is downgraded to Neutral from Outperform. Target falls to $9.53 from $10.49.

The company has re-confirmed FY16 profit guidance of $23-24m and initial FY17 guidance is $23-25m. FY17 guidance is 15% below Morgans forecasts, with the main reason being additional expansion costs in Canada and an increase in the expected bad debt profile for GoGetta.

While underlying growth remains strong the broker prefers to wait and assess the long-term outlook for GoGetta at the results. Rating is downgraded to Hold from Add rating retained. Target is lowered to $10.40 from $11.00.

SEVEN WEST MEDIA LIMITED ((SWM)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 2/1/3

Near-term cost offsets will be hard to obtain, Macquarie contends, given the competitive landscape. The broker lowers TV ad market estimates for the second half and FY17 which drives a material downgrade for Seven West Media.

Seven also faces challenges from the Olympics, which the broker previously estimated will generate a $20m loss in the first half.

Rating is downgraded to Underperform from Outperform, reflecting a lower target price as well as the recent share price performance. Target is $1.00 versus $1.05.

TATTS GROUP LIMITED ((TTS)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/3/1

The entry of disrupters into the Australian lottery market means UBS is asking the question whether Tatts licences should be considered "exclusive". They may be a small part of the market at present but the advertising has increased dramatically, the broker notes.

The broker also undertakes research on the wagering market and, despite the marketing campaign following the launch of UBET last year, brand awareness is considered low in key states of Queensland and South Australia.

UBS downgrades to Neutral from Buy and lowers the target to $3.83 from $4.10.

WESTFIELD CORPORATION ((WFD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/2/1

Macquarie reviews its investment thesis ahead of the first half results. Earnings are expected to be impacted by the completion of the asset sale program The broker's second half forecast is more affected by the reduction in the GBP/USD post the Brexit vote.

While the broker remains attracted to the strong returns expected from the US$6.5bn development pipeline and the exposure to a high quality portfolio, the weaker US/UK retail conditions and softer GBP mean the rating is downgraded to Neutral from Outperform. Target falls to $11.31 from $11.42.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/2

Whitehaven met June Q sales and production guidance which is of little surprise given the recent strong operating performance. The stock has had a solid run of late, Morgans notes, thanks to a stronger thermal coal price and hasty short-covering.

It appears the market has decided the worst is over for coal. Morgans suggest Whitehaven has now overshot the fundamentals and is at risk of an easing back in coal prices. On that basis the broker pulls back to Hold. Target rises to $1.41 from 90c.

In the wake of the June quarter production numbers UBS calculates that the company earned a margin of $13/t. The broker expects free cash flow over the June half of around $50m, reflecting the strong margin.

The broker downgrades to Neutral from Buy to reflect the strong share price performance. Target is raised to $1.75 from $1.25.

WESTERN AREAS NL ((WSA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/3

Nickel stocks have soared in recent weeks on speculation of a potential ban on nickel ore mining in the Philippines. While this is a risk, Macquarie's forecasts already factor in higher nickel prices.

After the share price rally the broker downgrades to Neutral from Outperform. Western Area's target falls to $2.70 from $2.80.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms