Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Chris Shaw

In a change to the trend of recent weeks, upgrades to ratings by brokers in the FNArena database outweighed downgrades this week to the tune of thirteen to nine. Total Buy ratings now stand at 42.57%.

Adelaide Brighton ((ABC)) was among the upgrades, JP Morgan moving to a Buy rating from Hold on relative valuation grounds, This follows underperformance by the stock compared to peers over the past few months.

JP Morgan also upgraded Alumina ((AWC)) but to Hold from Sell. Valuation was again the driver of the upgrade and follows recent share price weakness, the broker still seeing some concerns given structural oversupply in the global aluminium market.

Following some share price falls in recent weeks UBS sees improved value on offer in Ansell ((ANN)), especially as a review of its model sees the broker confident the company can meet interim earnings expectations. Rating has been lifted to Hold from Sell.

Regarding Arrium ((ARI)), Deutsche Bank has also upgraded to Hold from Sell following AGM commentary indicating iron ore expansion plans remain on track relative to expectations. This gives some additional confidence and supports the valuation driven upgrade in rating.

Base Resources ((BSE)) has drawn down some of a new funding facility and Credit Suisse sees this as evidence lenders are confident there will be no significant adverse impact from changes to Kenyan mining legislation. Removal of a previous discount to valuation sees the broker lift its price target, generating a rating upgrade to Buy from Hold.

The granting of a mining licence for Chatree 2 should allow Kingsgate ((KCN)) to boost production in coming years, while there is also scope for an IPO of the assets in Thailand. This implies some upside and sees Citi upgrade to Buy from Hold.

With Lynas's ((LYC)) LAMP project in Malaysia receiving its first ore from Western Australia Macquarie has updated its model, the result being a solid increase in price target for the stock. The increase generates an upgrade to a Buy rating from Sell previously. 

More positive results from SingTel's ((SGT)) Bharti business in India implies an improved earnings outlook for the group overall in the view of Credit Suisse, the result being increases to forecasts and price target. An improved risk-reward outlook sees a rating increase to Buy from Hold.

While there appears little short-term upside for Treasure Wine Estates ((TWE)), Macquarie is of the view a spin-off of the Penfolds assets could be a significant positive for the company. To reflect this potential rating has been upgraded to Hold from Sell, while earnings forecasts and price target have also been increased.

Among the downgrades the most impacted stock was Boart Longyear ((BLY)), as CIMB Securities, Macquarie and Citi all downgraded ratings following revised earnings guidance from the company. With forecasts lowered to account for margin and pricing pressures, CIMB and Macquarie have downgraded to Sell from Hold and Citi to Hold from Buy.

Ausdrill ((ASL)) has also lowered earnings guidance and brokers across the market have been quick to cut earnings forecasts and price targets accordingly. Only CIMB has to date downgraded its rating, moving to Hold from Buy as any re-rating is unlikely until the company can deliver on earnings and de-gear to more appropriate levels.

Potential changes to surcharging standards could have a significant impact on earnings for Cabcharge ((CAB)), with JP Morgan now factoring in a discount to valuation to account for the possible impact. The resulting change in price target is enough for the broker to downgrade to a Sell rating from Hold previously.

Switching to a US dollar denominated model for CSL ((CSL)) has seen Citi adjust earnings forecasts and price target for the stock. Post the changes the stock appears expensive in the broker's view, so rating has been lowered to Sell from Hold.

Recent strong share price performance especially relative to others in the sector has limited the value on offer in Fletcher Building ((FBU)) at current levels in the view of JP Morgan. This has prompted the broker to downgrade to a Hold rating from Buy previously.

Improved earnings momentum has seen BA Merrill Lynch lift earnings forecasts for Insurance Australia ((IAG)), but this is not enough to offset the broker's view there is better value elsewhere in the sector. As a result, rating has been cut to Sell from Hold.

While Citi's price target for Primary Health Care ((PRY)) has increased given a rolling forward of the broker's model, this has been offset by recent share price gains. The end result is the broker downgrades its rating to Hold from Buy on valuation grounds.

In terms of changes to average target prices, no increases of more than 10% were recorded during the week among stocks under coverage. There were three significant cuts to targets, with those of Ausdrill, Boart Longyear and Cardno ((CDD)) also reduced by more than 10%.

The largest increase in earnings forecasts was enjoyed by Monadelphous ((MND)) and followed solid AGM commentary, while earnings estimates were revised lower by more than 15% for Boart Longyear, Qantas ((QAN)) and Ausdrill. 

Total Recommendations	Recommendation Changes
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