Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features SECURITY MATTERS LIMITED, and other companies. For more info SHARE ANALYSIS: SMX

By Rudi Filapek-Vandyck

Greece is burning (sort off) and the Federal Reserve doesn't really know what's happening inside the US economy, but here at FNArena, the least we can do is inform investors about what is happening underneath the facade of every day moving share prices.

The first, non-surprising, observation is that after seven weeks (or was that eight by now?) of near-uninterrupted share market weakness the total number of Buy ratings now exceeds 50% for the eight stockbrokers under daily coverage.

Contrary to what many might think, this is not something that is standard practice in Australia. Apart from retail-focused RBS (Morgans), most stockbrokers keep a preference for Neutral ratings so more than 51% Buy ratings actually means something. But what?

Does it mean the share market represents more value than ever before? We would all like to think this is the case. But “value” looks wobbly amidst weak sentiment and with earnings forecasts in a downtrend.

Needless to say, upcoming reporting seasons in the US and in Australia look to become more important by the day.

The week past saw 13 recommendation upgrades outnumbering 6 downgrades and that's nothing unusual given persistent weakness in the market.

Among the stocks that saw their ratings improve this week were FKP ((FKP)), SMS technology and Management ((SMX)) and Henderson Group ((HGG)). Mind you, all three of these improvements are more based upon an “enough is enough” knee-jerk response from stockbrokers and not so much a “this company is going to rock the roof off in the year ahead”.

We don't really see many of such predictions made in stockbroker reports these days.

A special mentioning goes out to uranium stocks Paladin ((PDN)) and Energy Resources of Australia ((ERA)). Both saw their share prices suffer from a sudden downturn for uranium prices and it remains anybody's guess how long the present chill reception of the word “uranium” across political leaders worldwide will last.

No surprise thus, both companies feature heavily among those companies who saw their future estimates being cut in the week past. Targets went down as well, but ratings improved in a sign that stockbrokers had another “enough is enough” response to ever falling share prices.

Everything has a price. While that may not necessarily be the case for Rio Tinto ((RIO)) controlled ERA, which is arguably in deep trouble these days, it already has for Paladin with rumours about corporate interest raging through the market this week.

Others that enjoyed better ratings this week include QR National ((QRN)), Westfield Retail Trust ((WRT)), Charter Hall ((CHC)) and QBE Insurance ((QBE)). With the exception of QRN, these are all “enough is enough” upgrades.

The few recommendation downgrades that were issued affected Foster's ((FGL)) -take-over (finally), IOOF ((IFL)) and media company Ten Network ((TEN)). Wesfarmers ((WES)) was hit as well on expectations of more risks surrounding China.

Foster's (take-over) and QRN saw target prices rise, as did Incitec Pivot ((IPL)) and Echo Entertainment ((EGP)). However, more targets have been falling in what no doubt will be an early signal of what lies ahead for Australia in the coming weeks.

Companies hit by reduced targets include the above mentioned ERA and Paladin, as well as Elders ((ELD)), Ten, Pacific Brands ((PBG)), FKP, Wesfarmers, SMS Tech and Management and QBE.

When it comes to the basis underneath all these targets and recommendations, earnings estimates, a few companies stand out with positive revisions this week; Echo Entertainment, OceanaGold ((OGC)), Murchison Metals ((MMS)), AGL Energy ((AGK)), Macquarie Airports ((MAP)), Graincorp ((GNC)), QR National and Envestra ((ENV)).

These companies stand out where most others continue enjoying cuts and reductions. This week's Top Ten in terms of cuts to forecasts contains one helluvalot resources stocks with Woodside ((WPL)) on top, which is hardly a surprise given management effectively issued a profit warning last week.

Energy features high with Woodside being followed by Caltex ((CTX)); another profit warning. Then we have ERA, Newcrest ((NCM)), Rio Tinto ((RIO)), SMS Group ((SGM)), Aquila Resources ((AQA)) and BHP Billiton ((BHP)). Two non-resource companies, Nufarm ((NUF)) and QBE, complete last week's top ten.

It's probably a sign of the times that average increases to EPS forecasts tend to be minor, but those cuts of up to 30% (Woodside) are nothing to be sniffed at.

Note: this is the first of this type of weekly updates. FNArena will publish follow-ups every week on Monday from now onwards.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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