Weekly Recommendation, Target Price, Earnings Forecast Changes

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)

This story features CHARTER HALL GROUP, and other companies.
For more info SHARE ANALYSIS: CHC
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Andrew Nelson

Brokers maintained the busy reporting season pace last week, adjusting target prices, revising forecasts and reviewing recommendations in anticipation of and in response to the flood of earnings reports. In what was the busiest upgrade/downgrade week of the year so far, some twenty six upgrades were made by major brokers, while thirty five downgrades were pushed through.

This week’s report leads off with Alacer Gold ((AQG)), which was upgraded to Hold from Sell by JP Morgan. The broker made the move on valuation grounds, noting the stock has undergone an aggressive de-rating period. BA-Merrill Lynch made the same move the week before, liking management’s decision to move ahead with an oxide mill, as opposed to taking on the sulphide project. The broker believes this decision will help to maximise cash flow from each ounce produced at Copler, rather than increasing ounces. Broker sentiment is more positive after the upgrades, with shares otherwise offering 64.5% upside to the consensus price target.

Alumina ((AWC)) comes next on an upgrade to Hold from Sell by Credit Suisse, the broker noting a better than expected 2012 loss and a substantial fall in the share price. Macquarie downgraded to Hold from Buy the week prior, saying the share price is too high, while otherwise remaining positive on the overall story. The changes leave the stock with a positive sentiment read.

Atlas Iron ((AGO)) was upgraded to Buy from Hold by UBS and downgraded to Hold from Buy by JP Morgan. UBS made its move despite a big reporting miss on the belief some sort of infrastructure solution will materialise between players in the Pilbara region, which translates to Atlas Iron getting Horizon 2 up and running. It’s actually the inclusion of Horizon 2 in the valuation case that encourages the broker to move. Conversely, JPM’s downgrade was all about uncertainty and disappointment after the weak result, which saw forecasts slashed. Post the changes the stock sits in negative sentiment territory in the database.

Caltex ((CTX)) was lifted to Buy all the way from Sell by Credit Suisse, while Macquarie dropped from Hold to Sell on some quite obviously different opinions. The upgrade has everything to do with CS putting a new analyst on the case with a new valuation model. The broker’s new man believes Mr Market is failing to properly value the reliable earnings stream on offer and also failing to appreciate that by 2015, refining will only account for less than 5% of earnings. Macquarie’s downgrade cited increased competitive pressures, balance sheet pressures, a weakening domestic economy and strength in refining that is likely to prove temporary at best. Sentiment remains negative post the changes.

Charter Hall ((CHC)) follows next, upgraded to Buy from Hold by JP Morgan and downgraded to Hold from Buy by UBS. JPM was pleased with the full year result, citing clean numbers, a simplified business model and a more positive stance on future growth projections. UBS simply thinks the price is too rich, noting the shares have outperformed the sector by 13% and the broader market by 29% so far this year.

JP Morgan also upgraded its call on Commonwealth Bank ((CBA)), moving to Hold from Sell, noting the shares have underperformed the sector by around 5% since the beginning of the year on the back of what the broker assumes is an ex-dividend migration into major bank peers. This is expected to end quite soon, especially given some of the longer term benefits offered by CBA, such as sector leading return on equity, low loan default rates, leverage to recent and substantial IT spend, and below peer exposure to resources, retail and manufacturing. Sentiment remains mired in negative territory, with shares trading at a 7.6% premium to the consensus price target.

Goodman Group ((GMG)) found itself lifted to Hold from Sell thanks to Credit Suisse. The 1H profit came in a bit ahead of the broker, who notes competition will be hard to come by given the high barrier to entry, while the combination of earnings stability and the exposure to offshore growth is also seen as appealing. Macquarie dropped its call to Hold from Buy the week prior on valuation grounds after coming off of restriction. The broker is otherwise quite upbeat about the outlook. Sentiment, while improved, still remains negative despite the upgrade.

Harvey Norman ((HVN)) was upgraded to Hold from Sell by Macquarie. Poor results and a deteriorating brand and business model aside, the broker thinks t the market is now looking through to a retail recovery down the track. The upgrade does little to improve the negative sentiment read.

IOOF Holdings ((IFL)) is up to Buy from Hold for Deutsche Bank after a solid 1H beat and a very positive outcome on Plan B synergies. The broker thinks the company is well set up to benefit from an improving flow outlook, especially if the forecast for a 2.25% terminal cash rate eventuates. Sentiment is positive.

Ivanhoe ((IVA)) makes its way to Hold from Sell on UBS’ books. The FY loss was in line with the broker, with the cash position looking good post the $80m raised via an entitlement offer over the period, although the recently weak share price is what actually allows for the lifted recommendation. Jetset World Travel ((JET)) is lifted to Buy from Hold by CIMB, the broker notes the stock is priced for downside risk and not upside risk. CIMB thinks this shouldn’t be the case given there's a new MD at the controls and a restructuring strategy is underway. Sentiment moves to Neutral for each stock on the upgrades.

Citi upgraded both Kingsgate ((KCN)) and Mirabella Nickel ((MBN)) to Buy from Hold. As far as the former goes, the broker reported that earnings came in ahead of expectations in the first half, with the company on track to meet FY13 production guidance. That and a pretty weak share price. The same goes for Mirabella, although the broker also cited improving cost performance, which offers some hope Santa Rita can persevere against further near-term nickel price weakness. Sentiment for Kingsgate improves to Neutral, while Mirabella remains positive.

CIMB upgraded Monadelphous Group ((MND)) to Buy from Hold, the analysts seeing further growth ahead from cost cutting despite management's assessment that FY14 will be a year of consolidation. CIMB believes the share price reaction post that admission was too excessive and should be looked upon as a great buying opportunity. Both UBS and BA-ML cut to Sell the week before on a share price that seemed too high given the ongoing slowdown in mining and resources capex and the damage this is expected to do to earnings. Despite CIMB’s upbeat assessment, sentiment remains stuck in negative territory.

National Australia Bank ((NAB)) was bumped up to Buy from Hold by JP Morgan. The broker cites cheap shares, improving banking conditions in the UK, effective cost cutting and improving leverage to a recovery in the business lending cycle. In fact, the broker sees the bank as having the best prospects for above-peer EPS increases going forward. Sentiment is positive.

Oil Search ((OSH)) had a busy week last week, the stock upgraded to Buy from Hold by Credit Suisse, but downgraded to Hold from Buy by Macquarie. CS noted everything remains on track for first LNG in 2014 and inside the earlier revised budget of US$19bn. The broker also saw no problems with liquidity on the horizon either. The broker also notes the company’s LNG project is among the majors in Australia and the broker is increasingly confident that sufficient gas resources can be found to proceed with train 3. Macquarie cut its price target a bit post an FY result that fell a bit short and given higher capex estimates going forward. Sentiment remains positive, with six Buys versus just two Holds in the database.

BA-ML lifted Orica ((ORI)) to Buy from Hold, moving the stock to its “most preferred” in the sector position after downgrading Incitec Pivot ((IPL)) to Hold from Buy. The stock boasts almost straight Buys in the database, with just one Hold from Citi ruining the perfect score. The downgrade on Incitec Pivot ((IPL)) was predicated by lower earnings due to lower fertiliser prices. IPL manages to hang on to its positive sentiment post the downgrade.

Peet & Co moves ((PPC)) to a near perfect sentiment score (five Buys, one Hold) after being upgraded to Buy from Hold by Macquarie. The broker says it is starting to sees some green shoots appearing in the residential property market. The broker also lifted Platinum Asset Management ((PTM)) to Hold from Sell, saying now that equity markets have improved, the broker expects better funds flow this half and added market share due to ongoing business improvements. Sentiment remains negative despite the change.

Macquarie made two more upgrades last week, raising both Spark Infrastructure ((SKI)) and Transpacific ((TPI)) to Buy from Hold. The broker notes Spark continues to perform better than expectations and while some of the supportive factors are one-offs, the stockbroker does see enough support to switch to a more supportive stance, hence the upgrade to Outperform and a more positive sentiment read. The TPI rationale is that the 1H result was pretty good, with the broker pointing out that deleveraging has continued and the company is otherwise making slow but steady progress in improving its operations. Again, sentiment is positive.

Citi upgraded both Senex Energy ((SXY)) and Tatts Group ((TTS)) to Hold from Sell. Senex is up on the broker’s belief Beach Energy's ((BPT)) deal with Chevron, just recently announced, justifies the Senex share price. As far as Tatts goes, 1H net profit was up 26% and Citi called it a strong showing, driven by a strong jackpot run in Lotteries and the TOTE Tasmania acquisition. FY14-15 EPS was lifted by 6% or better after adding SA Lotteries to the forecasts, with a strong earnings growth profile and a good track record in achieving profit growth underpinning the upgrade. Sentiment for Senex is positive, but not so for Tatts on four Holds, three Sells and a Buy.

BA-ML lifted Ramsay Healthcare ((RHC)) to Buy from Hold on the belief returns are likely to escalate over the next three years. Sentiment remains negative despite the upgrade. Credit Suisse pushed up Virgin Australia ((VAH)) to Buy from Hold on the back of an optimistic assessment that the ongoing change in strategic direction will deliver results. Estimates were reduced, however, the broker thinking Tiger Australia will not be able to effectively compete with Jetstar ((QAN)) until FY14. Sentiment is none the less positive.

Our last upgrade of the week was enjoyed by Westfield Retail Trust ((WRT)), BA-ML made the move on the back of management announcing an increase in dividend payout. The broker believes the move will help narrow the gap between share price and Net Tangible Asset valuation. While sentiment is positive for the stock, it is far less so than it was given the three downgrades to Hold pushed through last week. JP Morgan, UBS and Credit Suisse all cut their calls post the FY result. CS notes a somewhat disappointing guidance, which limits its valuation view. UBS thought the result was OK, but believes the outlook remains challenging. Lastly, JP Morgan didn’t take kindly to the news the Lowy family is selling its entire 7.1% stake at $3.09, a 2.8% discount to the last close and a 9.6% discount to the broker's net tangible asset value. It’s not the numbers that bothered the broker, but rather the decision by a well respected investor to reduce its exposure to Australian shopping centres. The broker also noted the $664m being dumped on the market as a result will create some absorption issues for investors and will likely keep a lid on the share price short term as well.

Switching to the downgrade end of the report, AWE Limited ((AWE)) was cut to Hold from Buy by UBS on the view that unlocking any further value comes with significant challenges. Sentiment remains positive.

Bank of Queensland ((BOQ)) and Bendigo and Adelaide Bank ((BEN)) were both downgraded by JP Morgan, the broker moving to Sell from Hold given regional bank shares have outperformed the broader sector by around 5% since the last full round of major bank updates in October. Currently, both of these regionals are trading at around the same levels as the majors and JP Morgan thinks this is unwarranted. Sentiment levels remain positive for BOQ, but Bendigo drops further into the negative post the downgrade.

It was another difficult week for Billabong ((BBG)), with CIMB dropping from Buy to Hold and UBS cutting from Hold to Sell. A downgraded guidance along with an otherwise half decent 1H result has brokers thinking that a takeover offer from one of the two active suitors now looks a little less likely. As far as CIMB is concerned, if this company is not being bought it will be forced to announce yet another capital raising, an unpalatable proposition for the Board. While the sentiment read has dropped from neutral to negative, a close read of broker commentary in the database shows little optimism outside the bids.

Macquarie Atlas Roads ((MQA)) was another double whammy case, downgraded to Hold from Buy by JP Morgan and from Hold to Sell by Deutsche Bank. Both brokers cited a disappointing dividend guidance, with JPM advising it is time to take some profits. Sentiment has shifted to neutral. The last multi-downgrade was experienced by Qube Logistics ((QUB)), only in this case it was a triple whammy. Macquarie, Credit Suisse and Deutsche all downgraded to Hold from Buy and all providing the same basic message: good 1H, good company, good long-term story, too rich of a share price. Sentiment has moved to neutral on the downgrades.

There were three more downgrades from Citi, with Reece Australia ((REH)) and Western Areas ((WSA)) down to Hold from Buy and Woolworths ((WOW)) cut to Sell from Hold. The story with Reece was a weakish result and lack of valuation upside, while WSA was all about a weak result, weak nickel prices and a jumpy broker. Sentiment is neutral and positive respectively. Woolies shares have been pushing higher for the last three months, meaning  a better than expected result was still not enough to substantiate current prices. Sentiment has moved to neutral on the cut.

There were four more from Macquarie as well; Micylin Express Offshore ((MIO)), Corporate Travel Management ((CTD)) and WHK Group ((WHG)) were all dropped down to Hold from Buy. The call on Micylin was due to the broker returning from restriction and updating its views. Disappointing guidance didn’t help. Sentiment does remain positive. The CTD downgrade was due to a very rich looking valuation despite a cracking result. As far as WHK goes, the broker notes tough conditions are to continue, while the immediate outlook for the shares is being determined by merger talks, but with a larger than usual skew towards 2H performance, the company's negotiation position hasn't exactly strengthened. Micylin and Corporate Travel maintain positive sentiment footing, while WHK moves to neutral.

The last one from Macquarie is M2 Communications ((MTU)), also down to Hold from Buy, with the broker taking a more cautious view on synergies from the Primus acquisition and also concern about valuation. CIMB also downgraded its call on M2, moving to Sell from Hold, also struggling with valuation and evaporating Primus synergies. The changes leave the stock neutrally regarded.

JP Morgan downgraded both Blackmores ((BKL)) and Matrix Composites ((MCE)) to Hold from Sell. The problem with Blackmores was a soft result and a downgraded guidance. Sentiment moves to neutral. Matrix’s 1H effort fell well short of the broker, who was taken aback by the size of the cut to FY13 guidance. The sales guidance is around 15% lower, earnings around 45% lower and net profit some 90% lower than the numbers put out back in October. The broker believes the company needs to grow the order book without sacrificing margins, which is a tough ask in what is a difficult demand environment. Sentiment is also neutral.

Horizon Oil ((HZN)) is dropped to Hold from Buy by CIMB, with the valuation looking increasingly stretched, while lower than expected production for Maari and a delay to the start up of Beibu Gulf didn’t help. Sentiment remains positive. UBS trimmed Henderson Group ((HGG)) to Hold from Buy on a simple too high share price call. A positive sentiment stance remains in place.

BA-ML downgraded its call on Westfield ((WDC)) to Hold from Buy. Says the broker: Westfield is a high quality company and the 2012 report showed just that. Alas, the broker also believes the company is lacking sufficient EPS growth momentum, for now, and hence the decision was made to pull back the rating. The sentiment read just hangs on to a positive bias.

Our last five mentions all come from Credit Suisse. Sims Metal ((SGM)) is cut all the way from Buy to Sell on a messy and somewhat indecipherable result that showed some, but nowhere near enough improvement. The move lowers the stock to a neutral sentiment read.

Meanwhile Crown ((CWN)), Flight Centre ((FLT)), Santos ((STO)) and Wotif.com ((WTF)) are all reduced to Hold from Buy. Crown booked a decent 1H result, but on weak VIP numbers in Perth, temporarily higher corporate costs and weak operating cash flow. Sentiment remains positive. Flight Centre is a simple share price too close to the target call, with positive sentiment is otherwise maintained. Santos is lowered given the stock up 10% in the past three months. The Hold call is the only blemish on an otherwise full house of Buy calls. Lastly, Wotif was lowered on a 1H miss and a PE that looks way too rich. The downgrade pushes the stock a bit further into negative sentiment territory.

It wouldn’t be a proper reporting season without some significant changes to consensus price targets. Ramsay Healthcare ((RHC)), Flight Centre ((FLT)) and Platinum Asset Management ((PTM)) all enjoyed greater than 20% increases. On the downside, both Hutchison ((HTA)) and Billabong were down more than 10%.

There were also a number of significant consensus earnings downgrades and while there are too many to cover one by one, there were a few standouts. Forecasts for FKP Property ((FKP)) were lifted by more than 28%. Billabong, on the other hand, saw its forecasts lowered by 273% (on low base numbers). Iluka’s earnings have moved almost 50% lower, while Santa Barbara ((SBM)) is down more than 30% and Salmat ((SLM)), Virgin and Horizon Oil ((HZN)) are all cut by more than 25%.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables below are based on data analysis from the week past concerning these eight equity market experts. The eight experts in casu are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, CIMB (formerly RBS) and UBS.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Securities,Citi,Credit<*br*>Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,UBS&b0=100,146,84,78,86,69,112,95&h0=81,153,119,104,141,104,121,139&s0=61,22,36,50,15,53,40,27″ style=”border:1px solid #000000;” />

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