Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Andrew Nelson

Welcome back folks. Our first Weekly Movers report of the year is a big one, with brokers taking these first couple of slow weeks to re-adjust models and to update positions for new commodity prices and FX assumptions. There were numerous sector wide reports over the past couple of weeks, with multiple recommendation and price target changes across mining and property for the most part.

By Friday, brokers had wrapped up a respectable 32 recommendation changes and at the end of it, Buy was no longer the most popular call, with Hold now moving to first place. According to the FNArena Database, just over 44% of the covered market now sits at Hold compared to 42% at Buy and 14% at Sell.

We’ll run though the list of upgrades first. In alphabetical order, we’re starting off with Alumina ((AWC)). Last week, AWAC partner Alcoa beat estimates with its 4Q result and the read through for Alumina was fairly positive according to most brokers. You’d have to say Credit Suisse liked the news the most, upgrading to Outperform from Neutral not only on the performance, but on a belief that Indonesian export restrictions on bauxite will soon increase China’s dependence on alumina imports, which would obviously be a positive development for a company like Alumina. The stock remains positively regarded in the FNArena Database with 5 Buys, two Holds and one Sell. The Buys are all about value and leverage to improving prices, while the Sells focus on breakeven results (at best) and limited returns for the next couple of years.

Next comes Ardent Leisure ((AAD)), with JP Morgan lifting its call to Buy. The broker made the move on confidence in management’s new set of targets, which is bolstered by positive year end increases to Gold Coast arrivals, a normalising weather outlook and a fairly attractive valuation picture. The stock remains positively regarded, with three Buys and two Holds recorded in the database.

BA-Merrill Lynch ran though a number of recommendation changes for A-REITs as part of a New Year's readjustment on the sector. CFS Retail Property Trust ((CFX)) was upgraded to Buy from Neutral, Commonwealth Property Office Fund ((CPA)) was boosted to Buy from Sell and FKP Property ((FKP)) was upgraded to Hold from Sell. Builder Lend Lease ((LLC)) was also upgraded by BA-ML, lifted from Sell to Buy on relative underperformance in 2012 and an improving macro environment.

Evolution Mining ((EVN)) grabbed the attention of Credit Suisse, the broker lifting it recommendation to Hold from Sell on recent weakness in the share price, although earnings forecasts were trimmed to reflect new commodity and FX assumptions. The Hold from CS is the only blemish on the stock in the database, which otherwise shows five Buys.

Deutsche Bank lifted Lynas Corp ((LYC)) to Hold from Sell as part of a sector review as well. However, the broker does remain quite concerned about rare earth prices and the prospects of more Malaysian issues. St Barbara ((SBM)) enjoyed two upgrades to Buy on sector updates from both Deutsche and Macquarie. The stock now boasts straight Buys in the database.

Macquarie Group ((MQG)) was the recipient of a boost from UBS, who lifted from Hold to Buy on expectations the bank will begin to streamline its business, possibly leading to the sale and closure of the Securities and Capital operations. However, the day prior saw BA-Merrill Lynch downgrade its call to Neutral from Buy, believing the share price has now run ahead of earnings and valuation metrics. The changes see Macquarie maintain its slightly positive rating in the FNArena Database, which shows two Buys and five Holds.

The last of the upgrades was enjoyed by Premier Investments ((PMV)), with Credit Suisse lifting from Hold to Buy on increasing confidence about the potential for earnings to stabilise for the group's mature brands, while also seeing some offshore growth opportunities. The stock improves its positive footing in the database, with three Holds and three Buys on record.

The downgrade column is a far busier list and is headed up by Atlas Gold ((AGO)), which was downgraded to Sell from Hold by both Macquarie and Deutsche Bank last week. Both brokers shifted their calls as part of sector wide reviews, with a number of mining stocks feeling the pressure of weak prices and unfavourable FX updates as brokers move to update models for the year ahead.

Macquarie’s re-jigging of the sector had more than one victim. Bending under the weight of unfavourable commodity price forecasts and FX models was BHP Billiton ((BHP)), down to Hold from Buy, Discovery Metals ((DML)), also down to Hold from Buy. Highlands Pacific ((HIG)) was also trimmed to Hold by Macquarie, as was Independence Group ((IGO)), Oz Minerals ((OZL)) and Rio Tinto ((RIO)), while Northern Iron ((NFE)) was cut to Sell from Hold.

Sticking with the miners, both Deutsche Bank and Credit Suisse cut their calls on Fortescue ((FMG)). CS moved from Buy To Hold, while Deutsche went from Hold to Sell. Deutsche made its call on valuation grounds as part of a sector review, while CS simply thinks the price has run a little too hot of late. Otherwise, the broker is positive on the company’s medium term outlook and admits there could be positive surprises in the short term. The stock remains neutrally regarded in the database, with four Buys, three Holds and a Sell on record.

The two brokers also downgraded Western Areas ((WSA)), both moving from Buy to Hold as part of the same sector review. Downgrades to nickel forecasts and increasing AUD/USD forecasts were cited as the cause in each instance. Mirabella Nickel was also caught up in CS review of nickel stocks, the broker cutting from Buy to Neutral on the reasons above.

BA-Merrill Lynch had a big sector review of its own in the A-REIT space, which saw BWP Trust ((BWP)) cut to Sell from Hold, Centro Retail ((CRF)) clipped from Buy to Hold, as was Stockland ((SGP)).

Next, UBS cut Commonwealth Bank ((CBA)) to Sell from Hold citing limited growth prospects and a stretched looking valuation. The broker is otherwise quite positive on the bank, it just expects to see very little in terms of shareholder value-add in the nearer term.

That leaves us with just one more downgrade left, Sydney Airports ((SYD)), which was dropped to Hold from Buy by Deutsche Bank. The broker reckons the risk of an adverse tax ruling has simply created too much uncertainty for the time being.

Price target changes were minimal despite all of the upgrade/downgrade action. Fairfax ((FXJ)) saw its consensus price target lifted by just over 4%, while Ansell saw its target trimmed by 8.7%, APN News and Media ((APN)) was pruned back by 29.4% and earnings forecasts cut by 80%.

Consensus earnings forecasts for iiNet ((IIN)) were up 30.5% over last week, Transurban ((TCL)) was up 24.75%, Fairfax up 11.1% and BC Iron up 8.49%. The downside sees Whitehaven lose 24%, Sims Group down almost 21% and Iluka ((ILU)) down by 11.5%.

 

Total Recommendations	Recommendation Changes
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