Weekly Recommendation, Target Price, Earnings Forecast Changes

Array
(
    [0] => Array
        (
            [0] => ((AQG))
            [1] => ((ALL))
            [2] => ((CPA))
            [3] => ((DJS))
            [4] => ((ERA))
            [5] => ((FLT))
            [6] => ((GPT))
            [7] => ((ALZ))
            [8] => ((MRM))
            [9] => ((PDN))
            [10] => ((CAB))
            [11] => ((IVC))
            [12] => ((PRG))
            [13] => ((SAI))
            [14] => ((SIP))
            [15] => ((TNE))
            [16] => ((WES))
            [17] => ((WOW))
        )

    [1] => Array
        (
            [0] => AQG
            [1] => ALL
            [2] => CPA
            [3] => DJS
            [4] => ERA
            [5] => FLT
            [6] => GPT
            [7] => ALZ
            [8] => MRM
            [9] => PDN
            [10] => CAB
            [11] => IVC
            [12] => PRG
            [13] => SAI
            [14] => SIP
            [15] => TNE
            [16] => WES
            [17] => WOW
        )

)

This story features ARISTOCRAT LEISURE LIMITED, and other companies.
For more info SHARE ANALYSIS: ALL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

– Upgrades catch up with Downgrades
– Activity spread across sectors
– Aristocrat Leisure upgraded and downgraded

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday April 29 to Friday May 31

Total Upgrades: 9
Total Downgrades: 9

Net Ratings Breakdown: Buy 40.20%; Hold 43.21%; Sell 16.59%

The Australian share market calmed down a bit last week, with a sum total of just eighteen recommendation changes being made. For the first time in a month and a half, downgrades did not outpace upgrades, both sides coming out even at nine apiece. Another difference from recent reports was that both upgrades and downgrades were spread across sectors.

Upgrades

Alacer Gold ((AQG)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 4/2/0

JP Morgan conducted a review of metal price forecasts and adjusted for a lower Australian dollar. While the magnitude of price revisions generally outweighed the benefit of the weaker Australian dollar, in the case of Alacer, the share price has fallen materially and was sitting below the price target.

Aristocrat Leisure ((ALL)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 2/4/2

A combination of updated currency assumptions, some minor adjustments to operational assumptions and updated Product Madness forecasts combined to see Macquarie lift FY13-15 earnings forecasts by 4%-6%. The currency changes combined with recent research conducted by the broker into the future of social and online gaming also helped to push the price target higher. Longer term optimism via social and online helped the upgrade. Macquarie said that while competition remains intense in traditional markets and the valuation is still a-ways from being attractive, there is share price support in the form of a strengthening USD, upcoming capital management and ongoing positive newsflow regarding online gaming in the US.

See also ALL downgrade

Commonwealth Office Property Fund ((CPA)) upgraded to Hold from Sell by Macquarie. B/H/S: 0/5/2

The broker noted Commonwealth Property has lost 9% in recent weeks, underperforming the REIT index. CPA's occupancy challenges have been well flagged and the broker suggests a 6.0% yield to the REIT average 5.7% means the stock no longer looks so unattractive.

David Jones ((DJS)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 0/3/4

In the wake of the third quarter sales results Macquarie noted retailing remains a dark art at David Jones, rather than a science. The broker said the company has little data or insight into its customers and why they shop. David Jones now has to catch up in terms of investment in technology to improve this situation. Still, the rating was upgraded on valuation grounds to account for the recent underperformance in the share price.

Energy Resources of Australia ((ERA)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 2/2/1

JP Morgan upgraded the stock after a recent sell off. The price target was raised to $1.25 from $1.20. The reasons to be positive include low price/net present value before risk weighting and potential for exploration success, said JP Morgan.

Flight Centre ((FLT)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/4/0

The broker suggested Flight Centre is a core growth stock with a globally expanding business that generates high returns on capital. Also, Credit Suisse said the market is underestimating the magnitude and durability of the growth. Recent weakness was seen as a buying opportunity and the price target was also raised to $45.10 from $33.50.

GPT Group ((GPT)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 2/2/2

GPT is now in the territory of material underperformance in relation to the sector. JP Morgan said GPT has paid a price for its stance on Australand ((ALZ)) amidst uncertainty regarding the bid negotiations, or lack thereof. GPT has a high quality asset base and stands out in terms of valuation support, said JP Morgan. The price target was also raised to $4.33 from $4.04.

Mermaid Marine ((MRM)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/2/0

Macquarie has reviewed the outlook for Mermaid Marine and upgraded the recommendation following the recent fall in the share price. The broker noted Mermaid is confident earnings growth will continue and Macquarie said it expects the supply base will provide all the growth in FY13, with a more subdued year in vessels. The situation is expected to reverse in FY14 given numerous vessel tender opportunities across several current projects.

Paladin Energy ((PDN)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 3/2/1

The broker has lowered its price target on Paladin to $1.25 from $1.75. This is based on a consideration of the current low uranium price, the balance sheet leverage and weak cash flow. Having done that, with close to a 30% potential return to target the rating was upgraded. Reasons to be positive include the stock trading at an un-risked price to net present value of less than 0.6 times, the potential for asset sales and improving operational performance and cash flow.

Downgrades

Aristocrat Leisure (ALL) downgraded to Neutral from Buy by UBS. B/H/S: 2/4/2

The first half result was solid in UBS' view. The increased target pay-out ratio was the surprise. This has been raised to 60-80% from 50-70%, reflecting the solid balance sheet. The broker's FY13 earnings forecasts were increased, but the rating was downgraded because of the valuation. The broker said it does remains attracted to the operating leverage to a cyclical recovery.

See also ALL upgrade

Cabcharge Australia ((CAB)) downgraded to Sell from Hold by Deutsche Bank. B/H/S: 1/2/3

The Victorian Government has made its ruling on the taxi industry enquiry and its findings represent the worst possible outcome for Cabcharge, said Deutsche Bank. Aside from direct earnings losses, the broker envisages a much more competitive market in the future, one in which Cabcharge will hold a decreasing share. What's even worse, other states could follow, said the broker. Earnings forecasts from FY14 onwards were cut, the price target dropped and the recommendation was downgraded. Maybe the changes will have a limited impact on incumbents and maybe they won't even be implemented. Maybe.

Invocare ((IVC)) downgraded to Sell from Neutral by UBS. B/H/S: 1/3/2

AGM commentary disappointed UBS, as while group revenue growth remained strong, growth in operating earnings was running well below the broker's expectations. UBS blamed lower case volumes and extra costs. FY13-15 revenue forecasts were unchanged, but EPS was trimmed by 6.5%, 5.3% and 4.9% on higher costs and thus lower margins. With forecasts lower and the PER still very steep at 26.8x FY13 earnings, the recommendation was downgraded.

Programmed Maintenance Services ((PRG)) downgraded to Neutral from Outperform by CIMB. B/H/S: 3/4/0

The company beat FY13 results expectations, which the broker thought was commendable given the current environment. Nevertheless, caution still prevails in terms of FY14, especially in the marine business. The gap between the projects that are ramping down and those ramping up could force falls in demand and sales. There is also the risk of a negative earnings impact from the EBA negotiations. Earnings forecasts were reduced by 12%-13% over FY14-15, CIMB suggesting it sees more risk and less reward.

SAI Global ((SAI)) downgraded to Neutral from Buy by UBS. B/H/S: 1/6/1

SAI Global's compliance division has come under scrutiny since the FY12 result. UBS expects weakness to continue into the first half. The broker believes management's findings from the review of the division will be an important driver of long-term value for SAI. With the stock otherwise trading at only a slight discount to a revised valuation, the rating was reduced.

Sigma Pharmaceuticals ((SIP)) downgraded to Sell from Neutral by Citi. B/H/S: 1/3/2

Sigma shares have enjoyed a strong rally of late and Citi analysts said it is all a bit too much, too soon. Instead, they counter the company is still facing ongoing risks associated with a weak retail environment, competitive industry dynamics and ongoing regulatory scrutiny of PBS funding. Also, Listed NZ company, EBOS, has acquired 60% of Symbion, but Citi said doesn't see a material impact on Sigma for the foreseeable future.

Technology One ((TNE)) downgraded to Neutral from Buy by BA-Merrill Lynch. B/H/S: 2/2/0

1H net profit beat the broker by 6%, with very strong cost-control delivering much of the upside. The company is still targeting the upper end of its guidance range, although a very strong 2H will be needed to bring it in. On the other hand, software license sales were weak, while the heavy 2H skew also increases risks. Thus while the company possesses a basket full of positives, the current environment is making the broker nervous, hence the downgrade.

Wesfarmers ((WES)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 1/3/2

The broker noted the Coles, Kmart and Officeworks stories continue to impress. Target remains a basket full of question marks and Kmart, well it appears to be stealing customers from Target. FY13-14 earnings forecasts were cut a little, while FY15 is up 2%. A lower price target is due to changes in the broker's outer year earnings assumptions for the Resources division. The stock has been expensive for a while now, but with the yield trade starting to unwind, the recommendation was lowered.

Woolworths ((WOW)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 2/2/4

JP Morgan has reduced earnings estimates for FY14 and FY15 by 3.0% and 4.8% respectively. The stock was downgraded because the valuation is expensive given the low rate of earnings growth. The home improvement losses also appear greater than expected. Woolworths remains a high quality company but JP Morgan wants further evidence of an improvement in Australian food and liquor like-for-like sales and a path to break even within the home improvement division.

Significant consensus target price and earnings forecast changes tabled below.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Securities,Citi,Credit<*br*>Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,UBS&b0=92,153,84,87,84,81,122,92&h0=85,152,118,98,141,98,114,139&s0=66,26,40,52,17,50,37,31″ style=”border:1px solid #000000;” />

Click to view our Glossary of Financial Terms