Weekly Recommendation, Target Price, Earnings Forecast Changes

Array
(
    [0] => Array
        (
            [0] => ((WES))
            [1] => ((MTU))
            [2] => ((CBA))
            [3] => ((NAB))
            [4] => ((RRL))
            [5] => ((SKI))
            [6] => ((TCL))
            [7] => ((APA))
            [8] => ((ANZ))
            [9] => ((CPU))
            [10] => ((AGK))
            [11] => ((APK))
            [12] => ((DOW))
            [13] => ((GPT))
            [14] => ((DXS))
            [15] => ((NHC))
            [16] => ((ORL))
            [17] => ((PMV))
            [18] => ((BRG))
            [19] => ((RRL))
            [20] => ((SYD))
            [21] => ((TPM))
        )

    [1] => Array
        (
            [0] => WES
            [1] => MTU
            [2] => CBA
            [3] => NAB
            [4] => RRL
            [5] => SKI
            [6] => TCL
            [7] => APA
            [8] => ANZ
            [9] => CPU
            [10] => AGK
            [11] => APK
            [12] => DOW
            [13] => GPT
            [14] => DXS
            [15] => NHC
            [16] => ORL
            [17] => PMV
            [18] => BRG
            [19] => RRL
            [20] => SYD
            [21] => TPM
        )

)

This story features WESFARMERS LIMITED, and other companies.
For more info SHARE ANALYSIS: WES
The company is included in ASX20, ASX50, 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 16 to Friday September 20, 2013
Total Upgrades: 6
Total Downgrades: 12
Net Ratings Breakdown: Buy 37.70%; Hold 43.57%; Sell 18.73%

Overall activity in the land of broker downgrades and upgrades remains relatively quiet, albeit with the observation that downgrades continue to outnumber upgrades. The week past saw twice as many downgrades than upgrades.

One stand-out feature is that yield stocks might be looking less attractive as market strategists are recommending a bias towards cyclicals and growth stocks, as far as individual stockbroker ratings are concerned yield remains in a positive light with four of the past week's six upgrades comprising of yield stocks.

Another observation is that retailers and mining services providers might prove popular in commentary and on the ASX, but both continue to feature prominently on the downside of broker ratings.

This week's third (and final) observation is that Wesfarmers ((WES)) seems to have recovered relatively quickly from its August disappointment when securities analysts were tripping over each other to downgrade and express worries and concerns about the company's outlook. Coal prices seemingly finding a bottom while retail spending might be on the up is providing the turnaround cocktail for the WA conglomerate.

There were no rating upgrades last week, but Wesfarmers features in the tables for upgrades to price targets and earnings forecasts.

Upgrades

M2 Telecommunications ((MTU)) upgraded to Buy from Neutral by Citi. B/H/S: 1/1/1

The stock has fallen around 12% since the FY13 result and the recent weakness has caused Citi to upgrade the rating back to Buy from Neutral. The target price of $6.85 and forecasts are unchanged. With almost two-thirds of the company's staff now in Manila, leveraging that capability into more sales is seen as a profit driver over the medium term.

Commonwealth Bank ((CBA)) upgraded to Neutral from Underperform by BA-Merrill Lynch. B/H/S:  1/3/4

The broker believes CBA is positioned to deliver attractive returns despite lower credit growth, given the bank's demonstrated capacity to manage revenue and cost outcomes. CBA is the least exposed to institutional lending among peers which for the moment is a good thing, the broker suggests. Value at this level is not compelling but fair, hence the broker has upgraded to Neutral. Target rises to $76.20 from $62.00.

National Australia Bank ((NAB)) upgraded to Buy from Underperform by BA-Merrill Lynch. B/H/S: 4/4/0

NAB's UK exposure now accounts for only 12% of NAB equity and only $1.10 of the broker's valuation. Conditions in the UK are improving and the broker suggests a UK exit would provide transparency and leave a business with an 18% return on equity. This provides for a major re-rating opportunity not shared by the other Big Four and NAB is now the broker's number one pick. Upgrade to Buy. Target rises to $40.30 from $28.40.

Regis Resources ((RRL)) upgraded to Oveweight from Neutral by JP Morgan. B/H/S: 2/3/1

JP Morgan has reviewed gold stocks and, with a focus on quality, has upgraded Regis Resources to Overweight from Neutral. The price target is raised to $3.70 from $3.30. With the gold stocks trading at significant premiums to spot valuations, the broker expects the equities to be a trading call on the gold price and catalyst-specific events. Despite a mildly positive view on the gold price (FY14 $1345/oz), JP Morgan prefers a conservative bias for long-only investors, given expected volatility in gold price and slim cash margins around spot prices.

See also Regis downgrade.

Spark Infrastructure ((SKI)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/4/0

The broker has looked at the tax issues facing Spark. Credit Suisse thinks the company can deliver on distribution growth while maintaining gearing, even under the most adverse scenario. The stock is considered attractive to long-term investors, hence, the rating is raised to Outperform from Neutral. The price target is raised to $1.78 from $1.76.

Transurban ((TCL)) upgraded to Buy from Neutral by UBS. B/H/S: 3/4/0

The broker is upgrading to a Buy from Neutral recommendation as the stock has underperformed the ASX200 since early June. The price target is also raised to $7.35 from $6.85 to incorporate the upside risk from the F3-M2 link and better traffic.

Downgrades

APA Group ((APA)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 1/4/3

The broker has looked at the downside risk to earnings from the Moomba to Sydney pipeline. Gas supply dynamics are expected to change in NSW from 2017 onwards. Cooper Basin gas is expected to be re-directed to LNG and more gas is to come from Victoria. In total, Credit Suisse estimates potential downside risk to the pipeline revenue of $23-50m from 2017. The rating is downgraded to Underperform from Neutral and the price target reduced to $5.90 from $6.10.

ANZ Bank ((ANZ)) downgraded to Underperform from Buy by BA-Merrill Lynch. B/H/S: 6/0/2

ANZ's expectation of rapid growth in Asia was fair, the broker suggests, but returns are now under pressure and the broker prefers exposure to domestic banking. A competitive Asian market means ANZ could face a period of low return on equity. Target falls to $27.60 from $30.30. Downgrade to Underperform.

Computershare ((CPU)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/5/1

The ACCC’s approval of AGL’s ((AGK)) bid for Australian Power & Gas ((APK)) is expected to result in the internalisation of APK’s customer management system which APK currently outsources to Computershare's Serviceworks. JP Morgan thinks this will result in a reduction of $40m in FY15 revenue. Computershare is also facing a further 2-3% in earnings pressure in FY15 from the rolling of hedge books. The broker is downgrading the rating to Neutral from Overweight. The price target is reduced to $9.76 from $10.21.

Downer EDI ((DOW)) downgraded to Neutral from Buy by UBS. B/H/S: 7/1/0

Given the run in the share price UBS has downgraded the stock to Neutral from Buy. The broker now has no Buy recommendations in the sector. UBS thinks, should investors want leverage to any commodity price strength, then the operators/miners are more attractive.

GPT Group ((GPT)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 1/5/0

An analysis of reporting season shows GPT had the softest net income growth amongst the large cap AREITs, at 0.9%. JP Morgan regards the risk in delivering on a forecast 10.4% equity internal rate of return as relatively low but has decided to de-rate GPT anyway, to Neutral from Overweight, given the relative return prospects. For high quality office exposure, the broker prefers Dexus ((DXS)). The price target is reduced to $4.03 from $4.15.

New Hope Corp ((NHC)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/0/1

Financial results for FY13 were largely in line with expectations but Credit Suisse notes the market seemed disappointed with the 5c special dividend, having received 20c in FY12. Production guidance is below expectations but not a big surprise given the planned closure of Oakleigh and the cut back to Jeebropilly. The rating is reduced to Underperform from Neutral on the share price appreciation.

OrotonGroup ((ORL)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/1/3

The Oroton brand was a source of weakness in the FY13 result with like-for-like sales down 4%. The broker finds a lot of uncertainties in the stock, none the least being Oroton Australia's store expansion and yield growth while Oroton International does not contribute materially to profit yet. The rating is downgraded to Underperform from Neutral and the price target reduced to $6.00 from $7.20.

Premier Investments ((PMV)) downgraded to Sell from Neutral by Citi. B/H/S: 2/2/2

Premier reported flat FY13 earnings, with soft sales being balanced by cost reductions. The broker does not see cost reduction opportunities lasting forever and while Smiggle's offshore expansion has plenty of legs, core brands remain a problem. The local brands are losing market share to specialty brands, the broker notes. The broker has increased forecast earnings by 7-9% in FY14-15 to account for the Breville ((BRG)) investment and has raised its target to $7.60 to $6.70 on the higher market multiple, but has downgraded to Sell in the belief the stock has run too far.

Regis Resources ((RRL)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 2/3/1

The FY13 result was in line with the broker's estimates. Credit Suisse has adjusted production forecasts to reflect lower guidance of 333-368,000 ounces for FY14. The $3.70 price target is retained but the rating is downgraded to Underperform from Outperform given the rally in the share price.

See also Regis upgrade.

Sydney Airport ((SYD)) downgraded to Neutral from Buy by UBS. B/H/S: 3/1/1

The broker has downgraded Sydney Airport to Neutral from Buy after the announcement of the corporate restructure. The stock has outperformed the ASX200 index since early March. UBS continues to like the stock's position against global aeronautical assets and the yield and growth outlook. The target price is unchanged at $4.05.

TPG Telecom ((TPM)) downgraded to Neutral from Outperform by Credit Suisse and to Neutral from Outperform by Macquarie. B/H/S: 1/3/2

For Credit Suisse, TPG's FY13 result was overshadowed by the announcement that it will extend the pipe fibre network to around 500,000 apartments in major capital cities. TPG will deploy fibre to the basement and then use VDSL vectoring to deliver broadband at up to 100Mbps. The broker thinks this is a highly compelling offer for consumers. Cash profit forecasts are upgraded for FY16 and beyond by 20% to reflect upside from FTTP deployment. FY14 and FY15 cash profit is upgraded 2% and 10% respectively. The rating is downgraded to Neutral from Outperform because of the share price rally. With respect to the fibre-to-the-building plans (FTTB), Macquarie estimates that for every $100 in capex required per unit/business connected, TPG would need to generate incremental earnings of $8m to deliver a return in excess of its cost of capital. The rating is downgraded to Neutral from Outperform. This is despite two key positives. First, the business is trading better than expected and, second, the growing infrastructure base is creating a unique and material investment opportunity. Macquarie will seek more detail on the FTTB and review the status.
 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms