Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been a relatively balanced one in terms of changes to ratings on stocks covered by the eight brokers in the FNArena database. A total of seven upgrades and eight ratings downgrades brought total Buy recommendations to 57.4%, down a little from nearly 57.7% last week.

Centro Retail ((CER)) was one to enjoy an upgrade, Deutche Bank moving to a Buy rating from Hold previously in response to revised aggregation terms. For Deutsche, the new terms significantly reduce the risk profile going forward, while offering additional incentives for unitholders to approve the proposal.

Following a review Deutsche also made minor changes to earnings estimates and lifted its price target for the stock. Elsewhere in the property sector, plans for a buyback of shares by Commonwealth Property Office ((CPA)) were enough for JP Morgan to upgrade to Overweight from Underweight. The buyback should act as a catalyst for the share price, while the broker is also attracted to low gearing levels and a conservative balance sheet as this offers scope for expansion opportunities.

In the resources sector, RBS Australia upgraded to Buy from Hold on Discovery Metals ((DML)), reflecting both upside from ongoing exploration success and to reflect improved valuation following recent share price weakness.

RBS also upgraded Kingsgate ((KCN)) to Buy from Hold on the expectation the ending of the wet season in northern Thailand will deliver improved quarterly production results from the Chatree project. The upgrade in rating comes despite a lowering of the broker's price target.

Murchison Metals ((MMX)) was upgraded to Neutral from Underweight by JP Morgan on news the company has entered an agreement to sell its interests in Crosslands and OPR. The funds to be received imply a value of $0.47 per share and improve both the valuation and financial position of Murchison. JP Morgan's price target has been adjusted to reflect the valuation impact.

While Northern Iron ((NFE)) remains on track to meet production targets for the full year, the move by the company to raise a further $9 million from its debt facility to alleviate a tight cash position has also been viewed favourably by Macquarie. This is enough for an upgrade to an Outperform rating from Neutral previously.

Among industrials, Programmed Maintenance ((PRG)) enjoyed an upgrade from RBS Australia, the broker moving to Buy from Hold post a solid interim result. The result increases confidence in the outlook for Programmed and should also help restore some credibility in the market according to RBS.

BlueScope ((BSL)) was downgraded to Hold from Buy this week by RBS, the broker arguing while an equity raising will improve the group's balance sheet there remains a significant amount of earnings uncertainty. This uncertainty means a Buy rating is no longer appropriate in the broker's view. 

Targets and earnings estimates for BlueScope have been adjusted across the market to account for the impact of the equity raising. OneSteel ((OST)) also saw cuts to earnings estimates and price targets post weak outlook commentary at its AGM during the week.

Cuts to iron ore prices by JP Morgan resulted in Gindalbie ((GBG)) being downgraded to Neutral from Overweight, while price target and earnings estimates were also reduced. It was a similar story for Mount Gibson ((MGX)), though in this case it was Citi lowering its numbers and downgrading to a Neutral rating from Buy previously.

In a tough week for IT stocks both Oakton ((OKN)) and SMS Management and Technology ((SMX)) were downgraded by RBS to Hold ratings from Buy. The changes reflect still difficult operating conditions in key markets. In both cases earnings estimates and price targets were also reduced.

Things are no easier for wealth managers as evidenced by weak guidance from IOOF ((IFL)), the update causing brokers to lower earnings forecasts and price targets. UBS also downgraded to a Neutral rating from Buy previously.

In contrast, Kathmandu ((KMD)) delivered a solid trading update but it only triggered minor changes to estimates. RBS has still downgraded to a Hold rating on valuation grounds post recent share price gains.

This week Telecom New Zealand ((TEL)) de-merged its network division and this has prompted brokers across the market to update their earnings models. Price targets have fallen across the board and Credit Suisse has downgraded to an Underperform rating from Neutral previously.

A solid second quarter result from James Hardie ((JHX)) has been enough to prompt some increases to earnings estimates and price targets, while brokers have gone the other way on David Jones ((DJS)) and trimmed forecasts and targets post yet another disappointing quarterly sales update from the department store owner.

NRW Holdings ((NWH)) delivered strong AGM earnings guidance and was being rewarded through increases to earnings estimates across the market, with all three brokers covering the stock also lifting price targets.

Forecasts for Virgin Blue ((VBA)) have also sneaked higher following solid AGM commentary, while a solid full year result from Graincorp ((GNC)) and expectations of another strong year to come have been enough for some minor revisions to estimates and price targets.

Following the acquisition of TransACT brokers have lifted forecasts for iiNet ((IIN)), the result being modest increases to price targets as well. Monadelphous ((MND)) has seen forecasts and price targets increase thanks again to positive outlook commentary at the group's AGM. Monadelphous is facing a different kind of problem than most other stocks in the Australian share market: ongoing popularity among buyers of equities. One recurring theme in stockbroker research on the company is thus, unsurprisingly, whether the shares are getting a bit expensive?

A slightly better than expected interim result has seen minor increases to forecasts for Thorn Group ((TGA)).

Shale gas developer and oil producer Beach ((BPT)) received some good news during the week with the Tantanna to Gidgealpa oil pipeline coming back on stream and this was enough for UBS to lift forecasts, while Credit Suisse revised some volume assumptions for Fortescue ((FMG)) that resulted in lower earnings estimates and a cut in price target. 

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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