Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features BANK OF QUEENSLAND LIMITED, and other companies.
For more info SHARE ANALYSIS: BOQ
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck, Editor FNArena

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 September 2 to Friday September 6, 2013
Total Upgrades: 6
Total Downgrades: 10
Net Ratings Breakdown: Buy 37.46%; Hold 44.08%; Sell 18.45%

Perhaps the overriding news for the week past, the first after the conclusion of the August reporting season in Australia, is that things have settled down in a rather placid manner as far as stockbroker ratings and expectations are concerned. Sure, there are still more downgrades than upgrades, but the numbers look less threatening and most of all, any changes made tend to remain rather benign in nature.

There's always room for some big changes and apart from the usual small miners, the local airline industry featured strongly with earnings forecasts and price targets receiving large downward adjustments. Other companies featuring strongly on the negative side were  Drillsearch, Tap Oil and Transfield Services. Note this did not always coincide with a commensurate share price reaction, suggesting short-covering and traders taking the view enough negatives had been priced in already.

On the positive side, banks' price targets went up and property player Peet & Co has been tipped as the next turnaround candidate.

As far as ratings upgrades and downgrades go, there no longer appears to be a broader theme with a broad selection of individual stocks triggering responses. That's probably an accurate reflection of the current state in the local share market: it's about picking individual stocks that look better than others in a market that is normalising in valuations and expectations after being some 3.5 years in no man's land post the 2008 meltdown and the subsequent 2009 recovery rally.

Upgrades

Bank of Queensland ((BOQ)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 1/6/1

S&P has upgraded Bank of Queensland's credit rating from BBB-plus to A-minus, which has provided some relief against the broker's prior concerns relating to the funding profile and corresponding ability to fund growth efficiently. Although the benefits to the funding position will take time, JP Morgan's forecasts were not predicated on this ratings upgrade. Hence, the recommendation is upgraded to Neutral from Underweight. The price target is raised to $9.98 from $9.54.

Harvey Norman ((HVN)) upgraded to Buy from Neutral by UBS and to Overweight from Neutral by JP Morgan. B/H/S: 3/2/3

Harvey Norman reported in line with consensus but below the broker. UBS lowers its estimates for FY14 9% but remains bullish, about 6% ahead of the market, believing the  tide has turned. UBS upgrades to Buy from Neutral citing an uplift in housing trends, better pricing, and a reduction in franchisee support. The broker notes the stock is trading at an 18% discount to the ASX200 and raises the target price to $3.30 from $300. JP Morgan has decided to upgrade Harvey Norman to Overweight from Neutral. The sales performance has improved and the outlook is supported by undemanding comparatives. Overall, the broker has removed the negative stance on consumer discretionary stocks in the retail sector. Earnings forecasts are upgraded 0.2% and 2.1% for FY14 and FY15 respectively.

National Australia Bank ((NAB)) upgraded to Outperform from Neutral by CIMB. B/H/S: 3/4/1

CIMB has decided to lower the risk-free rate used in DCF calculations -to 4.25% from 5.25%- and this has a positive impact on the broker's target prices for Australian banks. No other changes have been made. For NAB, the price target has risen to $35.02 from $31.72 previously and the rating is upgraded to Outperform from Neutral, given the boost to its blended valuation.

PEET & Co ((PPC)) upgraded to Buy from Neutral by Citi. B/H/S: 5/0/0

Mixed market conditions, poor consumer confidence and job security concerns all weighed on the residential housing sector, and consequently the company's financials. Citi thinks this will be the trough in organic earnings. Sales grew largely in Victoria and Western Australia in FY13. Earnings were materially affected by competition in Victoria. In the light of the result, the rating has been increased to Buy from Neutral and the target price raised to $1.60 from $1.41. The broker now uses an average DCF and NAV valuation because the FY14 price/earnings is not sufficiently captured in earnings upside.

WorleyParsons ((WOR)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/4/1

The upgrade offsets the downgrade to Neutral issued last month. Coverage of the stock has now switched to another analyst and the new guy is more confident about the value and growth opportunities for global player WorleyParsons. Note the previous analyst had maintained a positive medium term outlook. The new analysts believes the share price is not adjusted for the growth that is coming and therefore represents "compelling value". Target lifts to $26.60 (from $23.70). EPS estimates are actually a tad lower than previously, but DPS estimates have been increased.

Downgrades

Acrux ((ACR)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 1/0/1

Macquarie has surveyed 381 endocrinologists globally about testosterone therapy. The findings showed a lack of affinity for Axiron and a lack of product differentiation. This raises concerns about further market share gains and price. Moreover, the doctors, on average, said that 31% of new patients gave up the therapy within six months of beginning treatment. The broker has concerns about the broader market outlook given high patient lapse rates, low product differentiation and high relative attractiveness of potential new products. Earnings forecasts are adjusted downwards for FY14-16. The rating is downgraded to Underperform from Neutral. The price target is reduced to $3.00 from $3.50.

Evolution Mining ((EVN)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 1/4/1

The second half was nearing break even, confirming the weakness that was expected in the results. Credit Suisse retains a 90c target and reduces the rating to Underperform from Neutral on recent share price strength.

Mineral Resources ((MIN)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 1/1/1

The latest reporting season has confirmed JP Morgan's preference for contractors with either limited exposure to the Australian resource and energy sector or links to production mining services. JP Morgan also looks for contractors that are able to tap into non-resources markets for growth as well as good balance sheets and path to near-term cash flow generation. Mineral Resources has been downgraded to Underweight from Neutral because of concerns over the execution of plans to expand iron ore mining and mining services. The price target is steady at $9.93.

NRW Holdings ((NWH)) downgraded to Neutral from Outperform by JP Morgan. BHS 1/4/0

The latest reporting season has confirmed the broker's preference for contractors with either limited exposure to the Australian resource and energy sector or links to production mining services, or sufficient options available to find growth elsewhere. Alas, NRW Holdings does not fit into this category with a heavy reliance on customers in mining, iron ore specifically. Downgrade to Neutral with the add-on suggestion that the share price is trading close to fair value anyway.

Premier Investments ((PMV)) downgraded to Underperform from Neutral by BA-Merrill Lynch. B/H/S: 2/3/1

The broker upgraded Premier to Neutral in June given share price underperformance of consumer discretionary, but now that PMV has rallied some 30% against an 11% average gain for the sector, Merrills has again downgraded to Underperform. A 28% Premium to the company's historical PE is a bit rich. Target nevertheless rises to $6.65 from $6.20.

Silver Lake Resources ((SLR)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 1/0/2

Silver Lake's FY13 numbers were in line with forecasts. Macquarie has downgraded the recommendation to Underperform from Neutral. While the cost focus of the business is going a long way to improving the cash flow of the company, the broker thinks, on a conservative gold forecast of US$1,250/oz, there is minimal room for error. The price target is reduced to 70c from 80c.

Sirtex Medical ((SRX)) downgraded to Underperform from Neutral by CIMB. B/H/S: 1/1/1

The reach of the drug Stivarga has expanded with EU approval for the treatment of metastatic colorectal cancer. For CIMB it adds another headwind to an already challenging EU operating environment, putting near-term estimates for Sirtex at risk. The $11.23 price target is maintained and the recommendation is downgraded to Underperform from Neutral, given the broker thinks there's more than 10% downside risk.

Tap Oil ((TAP)) downgraded to Neutral from Buy by UBS. B/H/S: 1/2/0

Tap Oil's loss arising from the write-down of the Starfish punt was double the broker's estimates. Adding insult to injury, capital expenditure on Manora rose sharply as did procurement delays and construction costs – while first oil slid a touch. UBS downgrades to Neutral from Buy until the stock delivers on asset sales and production, citing upside risk, some of which has been factored into the target price which falls to 55c from 67c.

Transfield Services ((TSE)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 2/2/1

The latest reporting season has confirmed the broker's preference for contractors with either limited exposure to the Australian resource and energy sector or links to production mining services. JP Morgan also looks for contractors that are able to tap into non-resources markets for growth as well as good balance sheets and path to near-term cash flow generation. Transfield is downgraded to Underweight from Neutral because of concerns about margin pressure in the heritage services area, demand weakness in the Americas and the high gearing which leaves little room for error.

Virgin Australia ((VAH)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/4/3

The broker is lowering the rating to Neutral from Outperform and the target price to 42c from 49c. FY13 results were in line with guidance but Credit Suisse remains concerned about the competitive response from Qantas ((QAN)) in domestic divisions. Credit Suisse believes growth in east coast "Golden Triangle" sectors could be relatively flat, although this excludes TigerAir, where it remains unclear where capacity growth will be targeted.
 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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