Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features BOART LONGYEAR GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BLY

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 9 to Friday September 13, 2013
Total Upgrades: 8
Total Downgrades: 4
Net Ratings Breakdown: Buy 37.77%; Hold 43.81%; Sell 18.42%

The past week showed a marked turnaround in stockbroker sentiment towards ASX listed stocks. Not only did FNArena register twice as many recommendation upgrades as downgrades for the week (8 up versus 4 down), most negative adjustments in terms of price targets and earnings estimates hardly registered while the positive side showed more prominent moves.

Here's one easy conclusion to put forward: the positive investor sentiment that has taken hold of equity prices in September is also being reflected in sentiment amongst securities analysts.

Another easy conclusion to draw is that yield is not completely out of fashion and it probably won't be for a while as last week half of all upgrades (4) involved yield stocks. Beaten down underperformers are now being upgraded to Neutral (such as Boart Longyear and Sigma Pharma) while some proven outperformers are receiving unexpected upgrades on the back of improved forecasts for the year ahead (think Wesfarmers).

There's simply no denying the fact: optimism with regards to prospects for the year(s) ahead is improving, and markedly so.

Upgrades

Boart Longyear ((BLY)) upgraded to Neutral from Sell by Citi. B/H/S: 0/4/4

The company plans to restructure its debt by issuing US$300m of US senior notes. Proceeds will pay down the $450m bank facility, which will reduce to US$150m with less onerous covenants attached. The likely restructure removes the risk of a near-term rights issue to avoid a covenant breach. Still, Citi notes, net debt will remain elevated, meaning an equity raising further down the track can’t be ruled out. The rating is upgraded to Neutral from Sell and the price target is raised to 55c from 40c.

DUET ((DUE)) upgraded to Buy from Neutral by UBS. B/H/S: 2/6/0

DUET offers valuation support at around 10 times enterprise value/earnings and yields of 7-8% and is one of the broker's most preferred stocks in the regulated utilities sector. UBS has revised the rating to Buy from Neutral and the price target to $2.21 from $2.18.

Insurance Australia Group ((IAG)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/3/4

Macquarie has reviewed the reserving adequacy as a key driver of profitability. Reserve releases have contributed 28.3% to insurance profit between FY09 and FY13. The broker prefers Insurance Australia to Suncorp ((SUN)), given the level of reinsurance protection, zero exposure to life insurance and discounted P&C valuation. This is despite the broker's expectation that IAG will continue to invest in markets in Asia that do not return the cost of equity of the group and Suncorp will pay a FY14 special dividend of 15c. The rating is upgraded to Outperform from Neutral and the price target is raised to $6.20 from $6.00.

Sigma Pharmaceuticals ((SIP)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 0/6/1

The broker has reduced earnings forecasts by 5-8% after the first half result. Credit Suisse does not think the retail strategy has been well articulated. The uncertainly around PBS reforms plus the re-negotiation of the Community Pharmacy Agreement and implications for pharmacy wholesalers tempers enthusiasm for the stock, despite the ability of the business to generate robust free cash flows on a full year basis.

SP AusNet ((SPN)) upgraded to Buy from Neutral by UBS. B/H/S: 2/3/1

SP AusNet offers valuation support at around 10 times enterprise value/earnings and yields of 7-8% and is one of the broker's most preferred stocks in the regulated utilities sector. The rating is upgraded to Buy from Neutral and the price target to $1.25 from $1.20.

Transurban ((TCL)) upgraded to Overweight from Underweight by JP Morgan. B/H/S: 4/3/0

The broker was surprised at the range and extent of concessions Transurban may achieve as part of the F3-(now M1)-M2 project. Given the new government's commitment to road infrastructure, the broker sees TCL as well placed to benefit. TCL shares have fallen back to a level the broker finds attractive vis a vis an underlying cashflow growth forecast of 13%, let alone the asset value upside potential from the M1-M2. the broker has thus double-upgraded to Overweight from Underweight with the target unchanged at $6.59.

Wesfarmers ((WES)) upgraded to Outperform from Underperform by Credit Suisse. B/H/S: 2/1/4

Credit Suisse has upgraded the outlook for retail earnings. FY14 and FY15 earnings have been upgraded by 2% and 4% respectively. Consumer confidence and the housing sector are improving. Discretionary retail accounts for around 40% of FY14 earnings with supermarket retailing another 40%. Wesfarmers is leveraged to changes in the consumer environment and industrial earnings are at the bottom of the cycle and stand to benefit from any broader improvement in domestic activity. The broker also thinks resources earnings are at a bottom in the cycle for coal prices and this should drive a strong improvement in earnings in FY15.

Westfield Retail Trust ((WRT)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 5/1/0

High quality regional malls do not change hands very often but Westfield Group ((WDC)) and Westfield Retail Trust have sold their 33.4% interest in Karrinyup at a 19% premium to NTA and a 100bps cap rate better than book value, the broker notes. WRT has underperformed of late and thus value has emerged, the broker suggests, with this transaction offering confirmation and the buyback expansion providing support. Target unchanged at $3.50. Upgrade to Overweight.

Downgrades

ALS ((ALQ)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 1/1/6

ALS shares have bounced from their trough but at this level the broker warns around 50% of the group is facing headwinds as exploration activity amongst miners declines. The broker is forecasting a 22% fall in junior miner equity raisings by value in the first half FY14 and 7% by number, and the broker suggests ALS' current 18.6 times multiple does not capture this risk.

Beadell Resources ((BDR)) downgraded to Sell from Buy by Citi. B/H/S: 3/1/1

In the wake of the interim results, Citi notes Tucano is expected to deliver average life-of-mine production of 150,000 ozs over eight years and there is potential upside to the resource via ongoing exploration. Despite this, using the three-year average gold price forecasts of US$1,220/oz the broker struggles to identify attractive value. The rating is downgraded to Sell from Buy with an unchanged 80c target price.

Blackthorn Resources ((BTR)) downgraded to Neutral from Buy by UBS. B/H/S: 0/1/0

Blackthorn has released the Kitumba pre-feasibility study, which highlights an underground copper mine producing 39,000 tpa over 11 years with C1 cash costs of US$2.04/lb and capex of US$358m. The company describes this as a positive economic scenario but this is based on a copper price of US$3.50/lb. UBS is a little surprised there wasn't a more economic mine schedule. UBS found the study underwhelming and the project likely to return unfavourable economics under the broker's price deck, which assumes a long term copper price of US$2.55/lb. Nevertheless, the study is preliminary and likely to be optimised with further technical work.

Myer Holdings ((MYR)) downgraded to Sell from Neutral by Citi. B/H/S: 2/3/3

Myer reported FY13 like-for-like sale growth of just 0.4%. Citi notes, in FY13, costs rose faster than sales and the same outcome is likely in FY14. The broker thinks earnings in FY14 will fall by 5%. The rating is downgraded to Sell from Neutral as Citi believes the recent run in the share price looks unjustified based on the earnings trajectory. The target is steady at $2.40. Citi considers Myer's saving grace is a better price/earnings relative valuation compared with other large ASX-listed discretionary retailers.
 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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