Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features NATIONAL AUSTRALIA BANK LIMITED. For more info SHARE ANALYSIS: NAB

By Chris Shaw

In a more active week for ratings changes by the eight brokers in the FNArena database, a total of 11 recommendations went up compared to just six downgrades. Total Buy ratings now stand at 49.64%.

Among the upgrades were Aquila Resources ((AQA)), Macquarie lifting its rating to Buy from Hold following the lifting of coverage restrictions on the stock. In the broker's view the share rice is simply not pricing in the value of Aquila's asset base.

Deutsche Bank upgraded Commonwealth Property Office ((CPA)) to Hold from Sell on valuation grounds, as when the recent acquisition of 10 Eagle Street Brisbane is factored in, the stock is now trading in line with peers.

The announcement of an equity raising by Echo Entertainment ((EGP)) saw brokers across the market adjust their models, including changes to earnings per share estimates and price targets. Credit Suisse expects the stock will trade closer to the offer price post the issue, which is enough for the broker to upgrade to a Hold rating from Sell previously.

UBS has moved to a Buy rating on Fletcher Building ((FBU)) from Neutral previously, this as management has reconfirmed full year earnings guidance. At the same time the company announced some changes in senior management, which may see some restructuring and reorganising more likely in coming months, predicts UBS.

RBS Australia was active in upgrading resource stocks during the week, lifting Grange Resources ((GRR)), Iluka ((ILU)) and Mount Gibson ((MGX)) to Buy ratings from Hold previously. In all three cases the upgrades stem from changes to commodity price forecasts, which flows through to adjustments in earnings estimates and price targets as well.

The changes to commodity forecasts worked the other way as well, as RBS downgraded both Kingsgate Consolidated ((KCN)) and Perseus Mining ((PRU)) to Hold from Buy on the back of its revised targets and earnings forecasts.

For Incitec Pivot ((IPL)) the upgrade to Neutral from Underweight by JP Morgan is a valuation call and follows recent share price weakness. Minor changes to earnings estimates result in JP Morgan trimming its price target.

The rejection of an appeal against the approval of a temporary operating licence for Lynas ((LYC)) brings commissioning of the LAMP project closer in the view of UBS. This is enough for the broker to upgrade to Buy from Hold, with UBS also increasing its price target for the stock.

Relative share price underperformance is behind Citi's upgrade for National Australia Bank ((NAB)), as the broker notes NAB share price performance has lagged by around 6% so far this year. This leaves the stock offering compelling valuation according to Citi, who also lifts its price target.

With Transfield ((TSE)) shares having fallen since an earnings downgrade in April, RBS sees value enough to upgrade to Hold from Sell. A move to a more positive rating would require evidence of greater margin consistency and delivery on guidance for Easternwell.

On the downgrade side, Credit Suisse has cut its rating for Billabong ((BBG)) to Sell from Hold on the back of the capital raising and cutting of earnings guidance announced this week. The lack of earnings certainty translates into excessive risk in the broker's view, while value is also limited given the group's issues. Like others in the market, Credit Suisse has adjusted earnings forecasts and price target at the same time.

An update by Charter Hall Group ((CHC)) included the announcement of a contingent liability and this, plus recent share price outperformance, was enough for JP Morgan to downgrade to Hold from Buy. Price target has lifted slightly, while others in the market also adjusted earnings forecasts and price targets.

Lower earnings guidance from Jetset Travelworld ((JET)) caused brokers to cut forecasts and targets, while Deutsche Bank has also downgraded its rating to Hold from Buy. The rating change reflects uncertainty from restructuring initiatives announced with the market update.

The other resource upgrade was OZ Minerals ((OZL)), where JP Morgan cut its rating to Sell from Hold post a change in analyst covering the stock. While OZ Minerals offers a defensive exposure to the copper sector, says JP Morgan, the broker's view is this is priced in at current levels.

In terms of changes to price targets, the most significant were the cuts to Jetset Travelworld and OZ Minerals. There were no increases in forecasts greater than 2.5%. Earnings forecasts saw more significant adjustments, with Sydney Airport ((SYD)) enjoying some substantial changes and Goodman Group ((GMG)) and Whitehaven Coal ((WHC)) seeing some less significant increases. Cuts to Jetset's forecasts were the most significant at just over 10%. 

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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