Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Chris Shaw

The final week of reporting season for Australian equities has again seen downgrades from brokers in the FNArena database outweigh upgrades, this time by a score of 35 to 17. The ratings changes have brought total Buy ratings to 51.45%, down from 52.15% last week.

Among the companies to receive more than one upgrade were James Hardie ((JHX)) and QBE Insurance ((QBE)). Upgrades for the former came from UBS and Credit Suisse, both moving to Neutral recommendations from Sell previously.

The changes followed a 3Q result that gave some cause for optimism the worst may be behind the company, particularly with the prospect of additional capital management initiatives going forward. At the same time Macquarie downgraded to a Neutral recommendation from Outperform on valuation grounds.

More positive were the upgrades for QBE as Citi, BA-Merrill Lynch, JP Morgan and UBS all moved to Buy ratings from Neutral previously. The changes reflect a combination of factors, including value in the stock at current levels, better understanding of the company's margin outlook post its recent result and a more positive stance on general insurance stocks in general.

Among the other upgrades where brokers moved to Buy views were Aston Resources ((AZT)), Macquarie seeing some upside from the proposal for 10% of the group's stake in the Maules Creek project to be sold.

Deutsche Bank upgraded CSL ((CSL)) to a Buy from Neutral given its view the company should continue to enjoy margin expansion in coming years, while Citi has turned more positive on Insurance Australia Group ((IAG)) also in part due to an improved margin outlook.

Jetset Travelworld ((JET)) offers potential for a re-rating over the next 12 months according to Deutsche and this was enough to prompt an upgrade to Buy, while RBS Australia made the same change with Prime Television ((PRT)) given a somewhat more positive outlook and the potential for some corporate activity involving the company.

For Deutsche the potential for grade and production expansion is enough to justify upgrading to a Buy on Regis Resources ((RRL)), though at the same time UBS has downgraded to a Neutral rating on the stock on valuation grounds.

ResMed ((RMD)) offers scope for an increased buyback boosting earnings per share, which sees Credit Suisse lift its valuation and move to a Buy rating. It was a similar story for Seven Group ((SVW)), as BA-ML no longer sees working capital as an issue and expects valuation support from the group's media assets.

Warrnambool Cheese and Butter ((WCB)) was upgraded to a Buy by RBS following a stronger than expected profit result that implies good value at current levels, while JP Morgan upgraded Westpac ((WBC)) on relative valuation grounds following what appears to be excessive underperformance relative to ANZ Bank ((ANZ)). The broker downgraded ANZ to a Sell at the same time.

On the downgrades side, those receiving multiple cuts to ratings were Aristocrat Leisure ((ALL)), Australian Worldwide Exploration ((AWE)), Harvey Norman ((HVN)) and Newcrest Mining ((NCM)).

For Aristocrat, the downgrades were a factor of valuation after recent share price gains, as full year earnings were generally better than expected and prompted increases to earnings estimates and price targets.

UBS and Deutsche both moved to Neutral ratings on AWE from previous Buy ratings, again valuation calls following recent share price gains. Harvey Norman continues to deal with poor retail conditions and brokers now see additional pressure on franchise margins, which was enough for Macquarie and BA-ML to downgrade to Sell ratings from Hold previously. 

Newcrest also has some issues as Lihir is again proving a problematic asset, enough that full year production expectations have been revised lower. The changes saw JP Morgan and UBS downgrade to Neutral views as shorter-term outperformance now appears less likely.

The other most significant downgrade this week came courtesy of Macquarie, the broker moving to a Sell on Air New Zealand ((AIZ)) from a Buy previously. The change in view reflects still tough operating conditions given a combination of weaker long haul demand and increases to operating costs.

In terms of changes to price targets, the largest increases were in Seven Group, Aristocrat and Ausdrill ((ASL)), the latter on the back of a better than expected interim result. Price target cuts were most significant for Jetset, as brokers adjusted for lower than expected interim earnings.

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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