FYI | Aug 27 2012
This story features MMA OFFSHORE LIMITED, and other companies. For more info SHARE ANALYSIS: MRM
By Chris Shaw
The reporting season trend of ratings downgrades outweighing upgrades has continued through the past week, the eight brokers in the FNArena database lifting 10 recommendations during the period while cutting ratings on 45 occasions. Total Buy ratings now stand at 46.61%.
Among the upgrades was Mermaid Marine ((MRM)), where RBS Australia has moved to a Buy rating from Hold following a solid full year profit result. Post the result the broker made only minor changes to estimates but lifted its rating given improved valuation following recent share price weakness.
RBS also upgraded QR National ((QRN)) to Buy from Hold, the full year earnings result from the company providing greater confidence in the earnings trajectory in coming years. Increases in earnings forecasts and price target support the broker's upgrade in rating.
Mirvac ((MGR)) beat expectations with its full year result and given scope for a re-rating is internal targets for FY14 are achieved, Credit Suisse upgrades to a Buy rating from Neutral. Price target has also been increased.
At the same time Citi was disappointed in Mirvac's guidance for FY13 accompanying the profit result, while also noting recent gains have the share price near its target. To reflect this Citi downgraded to a Neutral rating on the stock.
Mortgage Choice ((MOC)) beat UBS's expectations with its full year earnings result and changes to forecasts drive up the broker's price target. Improved performance and a solid balance sheet are enough for UBS to upgrade to a Neutral rating from Sell.
Among retail exposed stocks Credit Suisse has upgraded both OrotonGroup ((ORL)) and The Reject Shop ((TRS)). For the former the upgrade to Buy comes after severe selling of the stock post the loss of a licence with Polo Ralph Lauren has improved the value on offer, while for The Reject Shop the broker's upgrade reflects the fact the stock is trading in line with valuation.
Seek ((SEK)) delivered a full year result a little better than RBS had expected and increases to forecasts suggest solid earnings growth in the year ahead. A strong market position and valuation upside see the broker move to a Buy rating.
Others took the opposite view, as both Citi and JP Morgan downgraded Seek post its profit result. Citi moved to a Hold rating from Buy given the view the stock is fair value despite solid confidence in the earnings growth outlook. JP Morgan has downgraded to Sell from Hold, reflecting a negative view of job volumes and what is regarded as an elevated earnings multiple.
While earnings for Sedgman ((SDM)) were solid RBS sees scope for some delays in contract awards. This prompts some cuts to earnings estimates and price target but the broker sees potential for related selling to create value in the stock. Rating is upgraded to Buy from Hold to reflect this view. Deutsche reacted differently and cut Sedgman to Hold from Buy, this reflecting an uncertain earnings outlook give the company's exposure to capex spending in coal markets.
QRxPharma ((QRX)) has also been upgraded to Buy from Hold by RBS, the broker expecting FDA approval for the group's lead product by the middle of next year. This should improve clarity with respect to the outlook for QRxPharma and so justifies an upgrade in the view of RBS.
Among downgrades, multiple cuts in ratings were the norm for the week. An example is AGL Energy ((AGK)), where Citi, JP Morgan and UBS all downgraded to Hold ratings from Buy previously. In all cases modest changes to earnings estimates and revisions to price targets imply reduced value on offer, even as earnings growth should be solid in the coming year.
Acrux ((ACR)) was downgraded to Hold from Buy by both Macquarie and RBS, as earnings forecasts have been revised lower to reflect earnings guidance that implies a more competitive operating environment. RBS Australia also cut its price target to account for its updated earnings expectations.
Both UBS and Credit Suisse downgraded Amcor ((AMC)) post its result, the former to Hold from Buy and the latter to Sell from Hold. Forex headwinds are impacting on the earnings growth outlook and Credit Suisse sees scope for defensives such as Amcor to be left behind if investors decide to turn attention to more cyclical exposures.
Full year earnings for CFS Retail ((CFX)) met expectations, so downgrades by Macquarie and Credit Suisse reflect valuation issues as the share price is now in line with revised valuations. Macquarie has downgraded to Neutral from Buy, while Credit Suisse lowered its rating to Sell from Hold.
Despite a better than expected profit result Monadelphous ((MND)) has been downgraded to Hold from Buy by both Citi and BA Merrill Lynch. The earnings growth outlook for the company remains solid across the next couple of years but valuation has become the issue for both brokers as the share price has continued to appreciate.
Norfolk Group ((NFK)) delivered disappointing updated earnings guidance and both RBS and JP Morgan cut earnings forecasts as a result. The increase in market uncertainty leads JP Morgan to suggest a restructuring is becoming more likely and both brokers have downgraded to Neutral ratings from Buy previously. Price targets have also been lowered.
Interim earnings from QBE Insurance ((QBE)) disappointed from a margin perspective and generated cuts to earnings forecasts and price targets across the market. Restoring confidence is expected to take a number of periods and as a result both Citi and BA-ML have downgraded ratings to Hold from Buy.
Ramsay Health Care ((RHC)) delivered solid earnings for the full year but earnings guidance wasn't good enough to justify a more positive view on the stock according to JP Morgan. Macquarie agreed, both brokers moving to Neutral ratings from Buy previously.
For Super Retail Group ((SUL)) earnings for the full year were solid but ongoing struggles in divisions such as Ray's Outdoors and Goldcross Cycles remain something of a concern. While earnings growth overall should remain solid valuation is now not as attractive, which has seen both Credit Suisse and RBS move to Neutral ratings from Buy previously.
Ardent Leisure ((AAD)) delivered a solid enough result given the impact of poor weather on the group's theme park operations but in Deutsche Bank's view the various growth options open to management are priced into the stock at current levels. As a result, rating is downgraded to Hold from Buy.
There was evidence of some weaker margins in the Bendigo and Adelaide Bank ((BEN)) result and this has prompted RBS to lower earnings estimates and price target. With limited growth and returns on offer the broker downgraded to a Sell rating from Hold.
Valuation is the issue for BigAir ((BGL)) in RBS's view, as full year earnings were solid and prompted an increase in estimates and price target. Rating has been cut to Hold from Buy. RBS has similarly lowered its rating for Coca-Cola Amatil ((CCL)), as while interim earnings were solid the broker sees ongoing tough trading conditions as limiting earnings certainty enough to justify a downgrade to a more cautious stance.
BlueScope's ((BSL)) full year earnings performance was dominated by a weak second half in the view of BA-ML, which sees the broker push out timing expectations for a recovery in the key Australian steelmaking division. Rating is downgraded to old from Buy given the challenging near-term environment.
Lower expectations for CSR's ((CSR)) aluminium division given lower prices for the metal see UBS downgrade to a Neutral rating from Buy, while the broker has similarly moved to a Neutral rating from Buy on Dulux ((DLX)) given share price outperformance over the past 12 months.
RBS Australia has lowered its utilisation assumptions for Emeco Holdings ((EHL)) to account for tough market conditions and the changes see a reduction in earnings forecasts and price target. RBS has concerns for mining service companies with overweight exposure to the coal sector and to reflect this the broker downgrades to a Hold rating from Buy.
Forecasts for coming years for Fantastic Holdings ((FAN)) have been cut by Credit Suisse as the broker expects tough operating conditions to remain for some time. The share price is now close to valuation, so rating has been lowered to Hold from Buy.
While earnings for Fletcher Building ((FBU)) were broadly as expected Citi suggests the shorter-term outlook remains challenging and this has prompted cuts to estimates and price target. The weak outlook is also enough for Citi to downgrade to a Hold rating from Buy.
Better than expected earnings from iiNet ((IIN)) has prompted some upgrades to forecasts and price target from Deutsche Bank. At the same time the stock is trading near the broker's revised valuation, which prompts a downgrade in rating to Hold from Buy.
Ongoing delays to approval for the LAMP are stretching Lynas's ((LYC)) balance sheet in the view of JP Morgan and this is creating significant uncertainty for investors. The longer the delay to approval the greater the risks, so the broker moves to a Neutral rating from Outperform previously.
Post interim earnings and a meeting with management BA-ML has cut forecasts and price target for OZ Minerals ((OZL)), this reflecting concerns about the company's ability to meet production guidance in 2013. These concerns are enough for the broker to downgrade to a Hold rating from a previous Buy.
The combination of a recent solid share price run and the dilutive acquisition of the McPhillamy's gold project has seen Deutsche adjust its model for Regis Resources ((RRL)). While price target is unchanged the broker has moved to a Neutral rating.
Skilled Group (SKE)) delivered a solid profit result and with cost initiatives expected to sustain margins Deutsche lifted forecasts and price target. At the same time the broker downgraded to Hold from Buy on the stock on valuation grounds.
Deutsche made a similar change in rating for Sonic Health ((SHL)), as near-term earnings growth is not strong enough in the broker's view to offset some funding pressures and the persistent strength in the Australian dollar.
Tatts ((TTS)) delivered a solid result but JP Morgan suggests the share price is now trading too far in advance of fundamentals to justify its previous Neutral rating. A downgrade to Underweight results, while price target has also been trimmed.
A weak nickel price and a strong Australian dollar meant earnings for Western Areas ((WSA)) fell short of the expectations of UBS and cuts to forecasts on the back of weaker guidance prompt the broker to downgrade to a Hold rating from Buy.
Credit Suisse has made a similar change in Woodside Petroleum ((WPL)), this given its view the Pluto expansion has stalled and a re-rating will require greater clarity on one of more of the group's growth projects in the broker's view.
With respect to changes in price targets the largest increases over the week were in QRxPharma, Skilled and Treasury Wine Estates ((TWE)), while the largest cuts in targets were for Mirabela Nickel ((MBN)), Oroton and BlueScope.
Earnings forecast changes were weighted to the downside as while Yancoal ((YAL)) saw substantial increases post its interim result there were significant cuts to estimates for BlueScope, Commonwealth Property Office ((CPA)), Gindalbie Metals ((GBG)), Fairfax and Boral.
Total Recommendations |
Recommendation Changes |
Broker Recommendation Breakup |
Broker Rating
Order | Company | Old Rating | New Rating | Broker | |
---|---|---|---|---|---|
Upgrade | |||||
1 | CHALLENGER LIMITED | Neutral | Buy | Citi | |
2 | MERMAID MARINE AUSTRALIA LIMITED | Neutral | Buy | RBS Australia | |
3 | MIRVAC GROUP | Neutral | Buy | Credit Suisse | |
4 | MORTGAGE CHOICE LIMITED | Sell | Neutral | UBS | |
5 | OROTONGROUP LIMITED | Buy | Buy | Credit Suisse | |
6 | QR NATIONAL | Neutral | Buy | RBS Australia | |
7 | QRXPHARMA LTD | Neutral | Buy | RBS Australia | |
8 | SEDGMAN LIMITED | Neutral | Buy | RBS Australia | |
9 | SEEK LIMITED | Buy | Buy | RBS Australia | |
10 | THE REJECT SHOP LIMITED | Sell | Neutral | Credit Suisse | |
Downgrade | |||||
11 | ACRUX LIMITED | Buy | Neutral | RBS Australia | |
12 | ACRUX LIMITED | Buy | Neutral | Macquarie | |
13 | AGL ENERGY LTD | Buy | Buy | Citi | |
14 | AGL ENERGY LTD | Buy | Neutral | JP Morgan | |
15 | AGL ENERGY LTD | Buy | Neutral | UBS | |
16 | AMCOR LIMITED | Buy | Neutral | UBS | |
17 | AMCOR LIMITED | Neutral | Sell | Credit Suisse | |
18 | ARDENT LEISURE GROUP | Buy | Neutral | Deutsche Bank | |
19 | BENDIGO AND ADELAIDE BANK LIMITED | Neutral | Sell | RBS Australia | |
20 | BIGAIR GROUP LIMITED | Buy | Neutral | RBS Australia | |
21 | BLUESCOPE STEEL LIMITED | Buy | Neutral | BA-Merrill Lynch | |
22 | CFS RETAIL PROPERTY TRUST | Buy | Neutral | Macquarie | |
23 | CFS RETAIL PROPERTY TRUST | Neutral | Sell | Credit Suisse | |
24 | COCA-COLA AMATIL LIMITED | Buy | Neutral | RBS Australia | |
25 | CSR LIMITED | Buy | Neutral | UBS | |
26 | DEXUS PROPERTY GROUP | Buy | Neutral | Citi | |
27 | DULUX GROUP LIMITED | Buy | Neutral | UBS | |
28 | EMECO HOLDINGS LTD | Buy | Neutral | RBS Australia | |
29 | FANTASTIC HOLDINGS LIMITED | Buy | Neutral | Credit Suisse | |
30 | FLETCHER BUILDING LIMITED | Buy | Neutral | Citi | |
31 | IINET LIMITED | Buy | Neutral | Deutsche Bank | |
32 | LYNAS CORPORATION LIMITED | Buy | Neutral | JP Morgan | |
33 | MIRVAC GROUP | Buy | Neutral | Citi | |
34 | MONADELPHOUS GROUP LIMITED | Buy | Neutral | Citi | |
35 | MONADELPHOUS GROUP LIMITED | Buy | Neutral | BA-Merrill Lynch | |
36 | NORFOLK GROUP LIMITED | Buy | Neutral | RBS Australia | |
37 | NORFOLK GROUP LIMITED | Buy | Neutral | JP Morgan | |
38 | OZ MINERALS LIMITED | Buy | Neutral | BA-Merrill Lynch | |
39 | QBE INSURANCE GROUP LIMITED | Buy | Neutral | Citi | |
40 | QBE INSURANCE GROUP LIMITED | Buy | Neutral | BA-Merrill Lynch | |
41 | RAMSAY HEALTH CARE LIMITED | Buy | Neutral | Macquarie | |
42 | RAMSAY HEALTH CARE LIMITED | Buy | Neutral | JP Morgan | |
43 | REGIS RESOURCES LIMITED | Buy | Neutral | Deutsche Bank | |
44 | SEDGMAN LIMITED | Buy | Neutral | Deutsche Bank | |
45 | SEEK LIMITED | Buy | Neutral | Citi | |
46 | SEEK LIMITED | Neutral | Sell | JP Morgan | |
47 | SKILLED GROUP LIMITED | Buy | Neutral | Deutsche Bank | |
48 | SONIC HEALTHCARE LIMITED | Buy | Neutral | Deutsche Bank | |
49 | ST BARBARA LIMITED | Neutral | Sell | Macquarie | |
50 | SUPER RETAIL GROUP LIMITED | Buy | Neutral | RBS Australia | |
51 | SUPER RETAIL GROUP LIMITED | Buy | Neutral | Credit Suisse | |
52 | SYDNEY AIRPORT HOLDINGS LIMITED | Buy | Neutral | RBS Australia | |
53 | TATTS GROUP LIMITED | Neutral | Sell | JP Morgan | |
54 | WESTERN AREAS NL | Buy | Neutral | UBS | |
55 | WOODSIDE PETROLEUM LIMITED | Buy | Neutral | Credit Suisse |
Recommendation
Positive Change Covered by > 2 Brokers
Order | Symbol | Previous Rating | New Rating | Change | Recs |
---|---|---|---|---|---|
1 | MBN | 60.0% | 100.0% | 40.0% | 3 |
2 | QRX | 67.0% | 100.0% | 33.0% | 3 |
3 | MRM | 67.0% | 83.0% | 16.0% | 6 |
4 | CGF | 71.0% | 86.0% | 15.0% | 7 |
5 | QRN | 29.0% | 43.0% | 14.0% | 7 |
6 | ARI | 75.0% | 83.0% | 8.0% | 6 |
7 | CDD | 25.0% | 33.0% | 8.0% | 3 |
8 | GBG | 60.0% | 67.0% | 7.0% | 6 |
9 | TWE | – 43.0% | – 38.0% | 5.0% | 8 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Previous Rating | New Rating | Change | Recs |
---|---|---|---|---|---|
1 | CFX | 29.0% | – 14.0% | – 43.0% | 7 |
2 | FAN | 100.0% | 67.0% | – 33.0% | 3 |
3 | MND | 43.0% | 14.0% | – 29.0% | 7 |
4 | SEK | 43.0% | 14.0% | – 29.0% | 7 |
5 | SUL | 57.0% | 29.0% | – 28.0% | 7 |
6 | QBE | 75.0% | 50.0% | – 25.0% | 8 |
7 | AMC | 63.0% | 38.0% | – 25.0% | 8 |
8 | AGK | 63.0% | 38.0% | – 25.0% | 8 |
9 | SKE | 100.0% | 75.0% | – 25.0% | 4 |
10 | ORL | 40.0% | 20.0% | – 20.0% | 5 |
Target Price
Positive Change Covered by > 2 Brokers
Order | Symbol | Previous Target | New Target | Change | Recs |
---|---|---|---|---|---|
1 | QRX | 1.210 | 1.570 | 29.75% | 3 |
2 | SKE | 2.590 | 3.050 | 17.76% | 4 |
3 | TWE | 3.747 | 4.265 | 13.82% | 8 |
4 | CDD | 7.865 | 8.463 | 7.60% | 3 |
5 | REA | 14.156 | 15.187 | 7.28% | 7 |
6 | FAN | 2.933 | 3.090 | 5.35% | 3 |
7 | SUL | 8.021 | 8.394 | 4.65% | 7 |
8 | SEK | 7.054 | 7.304 | 3.54% | 7 |
9 | AMP | 4.345 | 4.489 | 3.31% | 8 |
10 | MRM | 3.570 | 3.622 | 1.46% | 6 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Previous Target | New Target | Change | Recs |
---|---|---|---|---|---|
1 | MBN | 0.946 | 0.700 | – 26.00% | 3 |
2 | ORL | 8.830 | 6.970 | – 21.06% | 5 |
3 | BSL | 0.609 | 0.503 | – 17.41% | 7 |
4 | GBG | 0.872 | 0.760 | – 12.84% | 6 |
5 | QBE | 14.783 | 13.890 | – 6.04% | 8 |
6 | EHL | 1.138 | 1.072 | – 5.80% | 6 |
7 | YAL | 1.600 | 1.513 | – 5.44% | 4 |
8 | ARI | 1.290 | 1.238 | – 4.03% | 6 |
9 | FBU | 6.200 | 6.000 | – 3.23% | 8 |
10 | AQG | 7.548 | 7.313 | – 3.11% | 8 |
Earning Forecast
Positive Change Covered by > 2 Brokers
Order | Symbol | Previous EF | New EF | Change | Recs |
---|---|---|---|---|---|
1 | YAL | 11.800 | 82.650 | 600.42% | 4 |
2 | IIN | 31.900 | 34.333 | 7.63% | 6 |
3 | SKE | 23.300 | 24.800 | 6.44% | 4 |
4 | CLO | 8.167 | 8.633 | 5.71% | 3 |
5 | OSH | 12.778 | 13.323 | 4.27% | 8 |
6 | CMJ | 17.357 | 18.086 | 4.20% | 7 |
7 | QRN | 20.363 | 21.138 | 3.81% | 7 |
8 | RHC | 128.138 | 132.888 | 3.71% | 8 |
9 | REA | 72.757 | 75.086 | 3.20% | 7 |
10 | MMS | 80.200 | 82.400 | 2.74% | 3 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Previous EF | New EF | Change | Recs |
---|---|---|---|---|---|
1 | BSL | 3.286 | 1.843 | – 43.91% | 7 |
2 | CPA | 12.100 | 8.243 | – 31.88% | 7 |
3 | GBG | 5.233 | 4.567 | – 12.73% | 6 |
4 | FXJ | 8.375 | 7.475 | – 10.75% | 8 |
5 | BLD | 19.650 | 17.600 | – 10.43% | 8 |
6 | ORL | 70.780 | 64.204 | – 9.29% | 5 |
7 | ARI | 19.675 | 17.867 | – 9.19% | 6 |
8 | FBU | 41.809 | 38.572 | – 7.74% | 8 |
9 | SGM | 91.514 | 84.886 | – 7.24% | 7 |
10 | AGO | 20.938 | 19.525 | – 6.75% | 8 |
Technical limitations
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