Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features COLLINS FOODS LIMITED, and other companies. For more info SHARE ANALYSIS: CKF

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday December 2 to Friday December 6, 2013
Total Upgrades: 9
Total Downgrades: 8
Net Ratings Breakdown: Buy 36.83%; Hold 44.66%; Sell 18.51%

The week ending on Friday, 6th December, was all about corporate action, falling share prices and disappointing guidances for the year ahead. The first two factors triggered nine recommendation upgrades while corporate disappointments were responsible for eight downgrades during the week.

A telling tale is shown in the overview for price target changes for the week: on the positive side we find only two stocks (Fairfax and Southern Cross Media) and none of these two also figures among the changes in ratings.

Struggling-for-corporate-survival mining services contractor Forge Group stands out on the negative side with a 98% fall in consensus price target and 171% fall in consensus EPS estimate after the shares resumed trading last week. The on-market price action has been in line with these changes.

Alongside Forge Group, Virgin Australia features with a 72% decline in EPS estimate, while Imdex suffered a fall to the tune of 22%. On the positive side of earnings estimates we find Alacer Gold (up 190%) and Western Areas (up 94%) stealing the show.

Upgrades

Collins Foods ((CKF)) upgraded to Buy from Neutral by UBS. B/H/S: 2/0/0

The first half was tough but some improvement was seen in the latter stages and UBS suspects management's operating efficiency initiatives have started to pay off. The company has acquired Competitive Food's 44 KFC stores in Western Australia and Northern Territory and the acquisition is expected to be 15% accretive to earnings in FY15. The rating is upgraded to Buy from Neutral and the price target is raised to $2.00 from $1.70.

Cromwell Property ((CMW)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 1/0/1

The company has acquired Northpoint at a very attractive price in  the broker's opinion, with an 8.7% yield. Cromwell has sold two lower quality properties to fund its share of the acquisition and has flagged further sales to recycle capital into more value adding opportunities. The stock offers exposure to a unique combination of yield and growth so Merrills has upgraded the rating to Buy from Neutral. The price target is steady at $1.05.

ERM Power ((EPW)) upgraded to Buy from Neutral by UBS. B/H/S: 2/1/0

The sharp fall in the stock is an example of the volatility that comes with a lack of size and market depth, in UBS' opinion. The broker thinks the retail strategy is looking relatively sound and acquiring Oakey minorities puts management in a better position. Having said that, UBS sees no change to the underlying business and maintains a $2.86 price target. The rating is moved to Buy from Neutral.

Fairfax Media ((FXJ)) upgraded to Outperform from Underperform by Macquarie. B/H/S: 2/2/3

The broker believes the worst may now be over for Fairfax's declining metro mastheads, with cost cuts and the digital transition set to provide support. The sale of Stayz has boosted the balance sheet, Domain is likely to be a value driver as it establishes itself in the number 2 real estate digital classifieds position, and while the outlook remains subdued, the broker feels consensus forecasts are too pessimistic. The broker has upgraded forecast earnings, lifted its target to 74c from 50c, and upgraded directly to Outperform from Underperform.

GrainCorp ((GNC)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 1/4/1

Deutsche Bank has upgraded the stock after Treasurer Hockey's rejection of ADM's takeover request, to Buy from Hold. The Treasurer's concerns partly revolve around timing and the fact that, with the recent deregulation, it's taking time for increased competition to emerge. Price target tumbles to $10 from $13.  The broker thinks ADM could retain, or possibly increase, its interest to 24.9% and under the takeover deal must retain the current stake until December 31. ADM has not made its intentions clear but stated it would work with the company to maximise the value of its investment. ADM has also signalled its intention to be involved in the Australian market place for the longer term.

OrotonGroup ((ORL)) upgraded to Outperform from Underperform by Credit Suisse. B/H/S: 1/1/2

Following recent share price weakness and a downgrade to the outlook, Credit Suisse has raised the recommendation to Outperform from Underperform. The company downgraded FY14 guidance and, while this is material, the broker believes it is largely reflected in the share price. Having reviewed the potential in the new brands Credit Suisse concludes there is value in the stock at current levels. The price target is reduced to $5.20 from $5.40.

Regional Express ((REX)) upgraded to Outperform from Neutral by CIMB Securities. B/H/S: 1/0/0

Regional Express has guided to a weaker performance in FY14 but the broker did not expect otherwise. CIMB thinks the worst has passed and load factors should improve, along with more accommodative government policies. Hence the rating is upgraded to Outperform from Neutral. Operating conditions still aren't optimal but the medium term outlook is more promising in the broker's opinion. The price target is reduced to $1.00 from $1.10.

SEEK ((SEK)) upgraded to Neutral from Underperform by Credit Suisse and to Hold from Sell by Deutsche Bank. B/H/S: 2/4/2

Seek has upgraded guidance and, in turn, Credit Suisse has raised profit expectations for FY14 by 4% and FY15 by 10%. A change of analyst responsibilities has resulted in a Neutral rating, upgraded from Underperform, and a $13.87 target, upgraded from $8.40. The medium term outlook is strong, in the broker's view, and Seek is considered a core holding in the online classified space. Nevertheless, at a price earnings of 27 times FY14 estimates the early stages of a job ad recovery look priced in. The company's latest trading update revealed better growth in the domestic market and Deutsche Bank has decided to upgrade to Hold from Sell. The price target was lifted to $12.85 from $8.45. Potential IPOs of the Zhaopin and IDP businesses should also provide value realisation for the company. Despite the upgrade Deutsche Bank's analysis does not suggest further volume recovery is imminent. There is limited appetite to increase hiring in the near term and a number of companies continue to pursue cost cutting.

Downgrades

Ausenco ((AAX)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 0/4/1

The broker notes the company has reduced 2013 guidance and raised equity at a significant discount. JP Morgan is concerned about the speed of the decline in the balance sheet. A turnaround in demand is expected to take some time and the broker finds it hard to see any positive catalysts in the near term. The rating is downgraded to Underweight from Neutral and the price target reduced to 65c from $1.65.

Fantastic Holdings ((FAN)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/2/1

Credit Suisse has greeted the company's profit downgrade with a downgrade to the rating – to Underperform from Neutral. The company expects first half profit to be $3-5m which is well below the $7.7m in the prior corresponding half. The broker considers FY14, and perhaps FY15, as a transition period for the company. The core brand appears to be affected by poor ranges and increased competition from Ikea and Super Amart. Plush also appears to be suffering from poor ranges and competition from Nick Scali ((NCK)). The broker expects Dare Gallery will be sold and would also prefer the company exits from Le Cornu.

Forge Group ((FGE)) downgraded to Neutral from Outperform by CIMB Securities. B/H/S: 0/2/1

CIMB has made significant downgrades to forecasts after the company reported large unexpected losses at the Diamantina project. The broker thinks the near-term outlook is awash with negative risk. There's lingering questions over the remainder of the order book. CIMB thinks that the uncertainty around the company's health will affect its ability to win work in the future, despite the fact that many of the problems were inherited from a deal done by previous management. The rating is downgraded to Neutral from Outperform and the price target is reduced to 62c from $6.25.

Metcash ((MTS)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/3/3

The first half underlying earnings were down 9% and Metcash has announced the strategic review is in progress. Macquarie notes the company has struggled to effectively compete against the major supermarkets and combat fuel discounting. The broker thinks the impending strategic review and the latest results will do little to reverse the downward pressure on the stock. The rating is downgraded to Neutral from Outperform and the price target is revised to $3.30 from $3.33.

Newcrest Mining ((NCM)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 1/4/3

The broker has become more bearish on the outlook for the gold price, with Fed tapering now likely, Indian physical demand subdued and mine supply set to have another growth year. Newcrest has suggested it is cash flow neutral at $1450/oz, which is about $100 more than spot right now. Downgrade to Underperform. Target falls to $7.00 from $11.00.

Nufarm ((NUF)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 2/2/4

Nufarm's AGM provided first half earnings guidance which is below the broker's forecast. The broker has reduced forecasts by 8-10%. Rain in SE Aust should mean weeds and pesticide demand in the second half, the broker suggests, but NUF remains a high risk proposition given exposure to weather and commodity prices. Debt is elevated on ongoing working capital investment in South America. Target falls to $5.10 from $5.70. Downgrade to Neutral.

Qantas ((QAN)) downgraded to Neutral from Buy by UBS. B/H/S: 1/5/2

UBS has taken to reducing forecasts for the second time in two days after the company updated the market with a profit warning. The company expects a pre-tax loss of $250-300m in the December half. The broker believes there'll be downward pressure on credit ratings, prompting the plea to the federal government for intervention. Three assets could be sold, in the broker's view, but each is complicated. These are the Sydney airport leases, the frequent flyer program and equity stakes in Jetstar's offshore ventures. Overall, UBS finds it difficult to recommend the stock and has downgraded the rating to Neutral from Buy. The price target drops to $1.20 from $1.45.

Westfield Retail Trust ((WRT)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 3/2/0

The broker suggests a merger of Westfield Retail and Westfield's ((WDC)) Australasian business makes strategic sense but the pricing basis of free cashflow proportions ignores gearing levels. Crunching the numbers implies pricing for WRT of 21 times, which is pretty steep in the broker's view. The total return for WRT shareholders under the cash/scrip deal is reasonable, the broker suggests, but the share overhang will likely weigh over performance. Downgrade to Neutral. Target unchanged at $3.18.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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