Weekly Recommendation, Target Price, Earnings Forecast Changes

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

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 July 08 to Friday July 12

Total Upgrades: 10
Total Downgrades: 8

Net Ratings Breakdown: Buy 41.43%; Hold 43.18%; Sell 15.39%

The upgrade/downgrade pace slowed significantly last week. The positive momentum of the past couple of months, on the other hand, has been maintained, with upgrades continuing to outpace downgrades. There were just 18 changes made in total, well down from 28 the week prior.

One change over the previous weeks is the composition, with miners fading into the background a little. Both the upgrade and downgrade ledgers were mixed, with materials plays still there, but joined by a higher proportion of property, infrastructure and consumer stocks.

Upgrades

Alumina ((AWC)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 2/4/2

The broker said Alcoa's second quarter showed improved profitability in the alumina division, with margins at the highest level since the fourth quarter of 2011. JP Morgan also factored in lower Australian dollar forecasts and combined these saw the rating upgraded despite lingering concerns about the structural oversupply of aluminium. The price target was also raised to $1.20 from $1.00.

Charter Hall Retail ((CQR)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 0/6/1

Credit Suisse visited the company's properties in the Hunter region and noted the defensive nature of the convenience-based assets. The stock remained the broker’s preferred play in the convenience-based retail space, with the company seen as having the greatest potential for accretive acquisitions. Also affecting the call was recent share price weakness.

Computershare ((CPU)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 4/3/1

Computershare was upgraded following the rise in the US dollar, recent share price underperformance and improving outlook for corporate activity. JP Morgan said it has been concerned about Computershare's acquisition strategy outside its area of expertise in the share registry industry, but does not think this will count in terms of the share price in the near term.

CSL ((CSL)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 5/1/2

CSL trades at a high PE, but has consistently backed this up with earnings growth, the broker noted. Merrills reviewed CSL's prospects and decided the market is being too conservative in its FY14-15 assumptions and that supply-side fundamentals are not as influential as demand-side fundamentals. The broker said CSL can grow earnings at a higher rate than current consensus on increasing scale in plasma, a new product for the US and entry into Japan. Entry into China is also becoming a necessity, the broker suggested, while in the meantime the company will continue to buy back stock.

Fantastic Holdings ((FAN)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 1/2/0

Fantastic announced management changes that will put paid to uncertainty about succession and, with the fall in the share price and positives from the lower Australian dollar, JP Morgan upgraded the stock. Looking ahead, the broker was mindful of issues in the furniture industry that warrant caution.

Federation Centres ((FDC)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 1/5/1

The recent Challenger transaction has accelerated Federation Centres' transformation, but medium-term growth prospects were seen as being increasingly reliant on commencing and delivering on developments. Credit Suisse expects this will be modest.

Lend Lease ((LLC)) upgraded to Buy from Neutral by Citi. B/H/S: 8/0/0

The broker noted the market has grown increasingly concerned about the company’s ability to grow, or even maintain construction earnings in FY14. These fears have seen the share price come off by 25% since the middle of May. On the other hand, Citi thought the company’s main earnings drivers remained intact and pointed to stable construction earnings that are underpinned by an Australian non-residential and a broad based US recovery. The broker said it readily expects development projects to drive solid earnings growth from FY15, with a number of assets sale cards up the sleeve in FY14 if needed. Citi lifted FY14-15 EPS by 3-4%, increased its target price and upgraded the recommendation. Citi admitted that near-term catalysts may be thin on the ground, but the valuation looked nice, with shares trading at 9.4x FY14 consensus EPS and offering 5% per year average earnings growth out to FY16.

Lynas Corp ((LYC)) upgraded to Buy from Neutral by JP Morgan. B/H/S: 1/3/0

The broker took a closer and more detailed look at the rare earths market and came away feeling a bit better about Lynas. The broker admitted most of the market is in oversupply, but the surplus is largely in cerium, while other elements like neodymium and praseodymium appear structurally short. This is good news for Lynas. There are certainly risks given the valuation is dependent on higher prices and it may get to the point the balance sheet needs some topping up, but the stock is seen as ridiculously cheap. Combined with more confidence in the rare earths market, the stock was upgraded.

Macquarie Group ((MQG)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 2/5/0

Deutsche Bank upgraded Macquarie after a detailed evaluation showed substantial upside. In particular, analysis of the annuity businesses has increased the valuation. Valuing the market-leverage business at peer multiples results in 33% potential upside to the share price. The price target was also increased to $56.20 from $43.60, in line with the revised valuation.

Tabcorp Holdings ((TAH)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 3/3/2

Passage of legislation in Hong Kong is a further step to co-mingling in that market and for Macquarie it confirmed the trend in the globalisation of tote wagering. Tabcorp is considered well placed to capitalise on this trend and while the near term impact may be small, the medium term upside could be material. The rating was upgraded and the price target was raised to $3.40 from $3.35.

Downgrades

Atlas Iron ((AGO)) downgraded to Neutral from Buy by UBS. B/H/S: 4/4/0

The broker noted the company's 70% held 3Mtpa Mt Webber Mine has been given the go ahead. The decision and metrics are in line with the broker's expectations and UBS predicted production will now reach the company's target of 12mtpa by mid-2014. The problem is that unit costs seem to be higher than expected, which saw the valuation fall to 79cps from 97cps. This fed through to the lower price target and caused the broker to downgrade its recommendation. UBS also noted there's a good chance of a Q3 dip in the iron ore price.

Fletcher Building ((FBU)) downgraded to Neutral from Outperform by CIMB. B/H/S: 3/3/2

It's not that the broker doesn't like the company, because it does. It's not that there isn't a very positive long-term outlook, because there is. Still, the recommendation was downgraded because the broker thought it was time to take some profits and there are several reasons why. The company has outperformed the S&P/ASX 200 by 37% over the past 12-months. Cost-out work is costing more than expected. There could be a pause in the rebuilding of Canterbury. The strengthening of the NZD against the AUD is negatively impacting the translation of Australian earnings. Lastly, there is near-term earnings risk, with the broker expecting a bottom of guidance range FY performance. The price target was also lowered to NZ$8.55.

iiNet ((IIN)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 4/2/1

JP Morgan has remodelled iiNet to reflect a more significant re-basing of margins in an NBN environment and a faster roll-out under a Coalition government. The negative impact of these changes was offset by a lower discount rate assumption. The broker said that the NBN gives iiNet greater scope to grow its subscriber base by making non-metro markets more accessible and raising broadband penetration. Resellers in the fixed-line industry will earn significantly lower margins, but for iiNet this will be somewhat diluted given the proportion of low-margin off-net customers.

Retail Food Group ((RFG)) downgraded to Neutral from Buy by UBS. B/H/S: 0/1/0

The broker noted the share price had run 36% since the pull-back in mid-June and was up around 38% since the beginning of the year. The stock has out run the ASX300 Industrials by 35% over the past twelve months on a total return basis as well. But with shares at around 14x FY14 earnings, the broker reckons the P/E discount to the retail discretionary sector that used to be in place has almost gone. Given it was this discount, and the view of relative value being on offer that had the broker at Buy, the recommendation was taken down a notch. EPS and DPS forecasts were unchanged.

Roc Oil Company ((ROC)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 3/1/0

The broker downgraded because of share price appreciation and relative value. The price target was lowered to 63c from 64c based on refinements to the Balai Cluster RSC model. The stock offers solid absolute potential upside of 21%, but in JP Morgan's view, this appreciation is more modest relative to the other small-mid cap oil stocks.

Seek ((SEK)) downgraded to Sell from Neutral by Citi. B/H/S: 1/3/3

With employment ad volumes still back-tracking and economic activity stalling in Australia, Citi pushed out its expectations for any sort of hiring recovery until 2015 at least. The broker did think things won’t get much worse and that ad volumes will stabilise at current levels, but even this implies a 5% volume decline in FY14, not the 10% growth Citi used to expect. FY14 EPS was cut by 16%, leaving the broker some 13% short of the market. Citi admitted the company is structurally well placed to take advantage of a volume recovery in FY15, but with shares above fair value, the recommendation was dropped.

Tox Free Solutions ((TOX)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/4/0

Macquarie decided to take a fresh look heading in to the FY report and came away with a lower FY14 earnings forecast, a lower price target and a downgrade to Neutral on valuation grounds. The broker remains positive on the company, having noted acquisitions are kicking goals, while at the same time the medium-term organic growth outlook also looks quite promising.

Western Areas ((WSA)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 5/2/0

Western Areas updated the market last week and Deutsche Bank analysts were again positively surprised. The analysts commented this is the twelfth consecutive quarter the company has met or exceeded guidance. It has but reaffirmed the analysts' view that management is strong and the assets are sector-leading despite a poor nickel price environment. Alas, following a strong rally in the share price, Deutsche Bank saw no other option than to downgrade, based upon valuation.

Total Recommendations	Recommendation Changes
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