Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features SEEK LIMITED, and other companies. For more info SHARE ANALYSIS: SEK

By Chris Shaw

Downgrades to company ratings by brokers in the FNArena database outweighed upgrades this week by a score of 12 to nine, leaving total Buy ratings at 50.03%.

Among the upgrades was Billabong ((BBG)), where UBS lifted its rating to Neutral from Sell on news of yet another approach from private equity play TPG. UBS's valuation has increased in line with the offer of $1.45 per share, though Citi went the other way and downgraded to a Neutral rating from Buy given the share price reaction to TPG's approach and the conditional nature of its proposal.

Newcrest ((NCM)) was also upgraded by UBS to Buy from Neutral after delivering a solid quarterly production report. While delivery of key projects remains a major driver for the stock, UBS sees improved value following recent share price weakness, which justifies the upgrade in rating. Brokers across the market revised earnings forecasts and price targets on the back of the production report.

The June quarter production report also saw UBS upgrade OZ Minerals ((OZL)) to Neutral from Sell, the move again based on improved valuation stemming from recent share price weakness. The quarterly report resulted in cuts to UBS's earnings estimates and price target, a move matched by others in the market as the result was factored into broker models.

A positive trading update from Nufarm included an increase in full year earnings guidance, which was enough for brokers to lift estimates and price targets. For JP Morgan it was also enough for a rating upgrade to Neutral from Underweight, which reflects both favourable conditions in Australia and positive momentum in the ongoing process of repositioning the business.

While trimming its earnings estimates and price target, Credit Suisse upgraded QR National ((QRN)) to Neutral from Underperform based on revised total expected shareholder return expectations. A softening demand profile remains the broker's main concern with respect to the stock.

Recent share price weakness has presented a buying opportunity in Seek ((SEK)) in the view of RBS Australia, as the broker notes buying the stock in periods when job ads are under pressure has typically paid off. Minor changes to forecasts see the broker trim its price target.

There is potential for Sigma Pharmaceutical ((SIP)) to start distributing excess capital to shareholders in the view of Citi, who expects any such increase in payouts will generate a share price re-rating. Recommendation has been upgraded to Buy from Neutral.

Among the downgrades, BC Iron ((BCI)) continues to deliver operationally according to UBS, but revisions to iron ore price expectations see the broker lower earnings forecasts from FY13. The changes mean a cut in price target and cause the broker to downgrade to a Neutral rating from Buy previously.

Both UBS and Citi downgraded GUD Holdings ((GUD)) to a Sell, the former from Buy and the latter from Neutral. The changes came after a full year profit result lower than had been expected and limited upside potential given what remain difficult operating conditions.

Limited total return potential is also the reason behind Credit Suisse downgrading Goodman Fielder ((GFF)) to Sell from Hold, as the broker simply sees little scope for outperformance in the current environment. Minor changes to forecasts reflect some revised timing assumptions for restructuring charges.

BA-Merrill Lynch has downgraded a couple of resource plays, moving to Sell ratings on both Grange Resources ((GRR)) and Intrepid Mines ((IAU)) from Buy in both cases. For Grange operational issues impact on production expectations and there are some management changes coming, while for Intrepid the suspension of operations at Tujuh Buki adds significantly to the investment risk associated with the company.

Higher cash costs have impacted on Macquarie's earnings forecasts for Kingsgate ((KCN)) but the bigger issue is the potential for higher external funding requirements for the Nueva Esperanza project. This has been enough for Macquarie to downgrade to a Neutral rating from Buy.

Expectations for a continuation of the trend of declining traffic for Macquarie Atlas's core APRR asset has seen JP Morgan revise its model for the company. Along with a cut in price target the broker has downgraded to a Sell rating from Neutral. 

Recent share price outperformance and some minor changes to forecasts and price target have been enough for Credit Suisse to downgrade Stockland ((SGP)) to a Neutral rating from Buy previously, while UBS has similarly downgraded Westfield Retail Trust ((WRT)) on valuation grounds. 

Outside of those stocks where ratings were changed, the major price target adjustment during the week was for Hutchison Telecommunications ((HTA)), where targets were reduced following what was regarded as a poor interim earnings result.

There were no major increases in earnings estimates during the week, while cuts to forecasts were largest for Aquarius Platinum ((AQP)), Western Areas ((WSA)), BC Iron, OZ Minerals, Ten Network ((TEN)) and Newcrest. 

 

Total Recommendations	Recommendation Changes
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