Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: BEN
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 October 7 to Friday October 11, 2013
Total Upgrades: 6
Total Downgrades: 5
Net Ratings Breakdown: Buy 37.31%; Hold 43.63%; Sell 19.06%

Stockbrokers in Australia are awaiting financial reports from local banks and day to day developments in the US, just like everybody else in the finance sector. In the meantime, overall activity has slumped to a virtual standstill.

The week past did see six ratings upgrades outnumber five downgrades but nearly half of these changes in ratings (5 out of 11) comprised of a reversion to a Neutral/Hold rating. Not exactly the stuff that sends investors' hearts racing and it is no different with (most) changes in price targets and earnings forecasts.

Two sectors that proved responsible for most changes are banks and energy stocks, with Woodside Petroleum receiving both one upgrade and one downgrade while Santos received one downgrade. Bendigo and Adelaide Bank and CommBank received upgrades during the week while Bank of Queensland received two downgrades post the release of its financial results.

Most changes in targets and estimates are hardly worth mentioning, in particular since resources stocks feature prominently.

One development that might be worth pointing out is that the number of Sell (and equivalent) ratings for the eight stockbrokers under FNArena's daily coverage has now risen above 19%, not a level we have witnessed often since FNArena started monitoring more than ten years ago.

Upgrades

Bendigo & Adelaide Bank ((BEN)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 0/7/1

The broker has previously preferred Bank of Queensland over Bendigo & Adelaide in the regional banking sector. Now the relative valuation gap has closed. Hence, the rating for BEN is upgraded to Neutral from Underweight. The price target has been rolled forward and reduced to $10.11 from $10.43. The key risks to this target relate to net interest margins, given the pricing volatility in the competitive domestic deposit market.

Commonwealth Bank ((CBA)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 1/4/3

Relative valuation gaps have now closed among the major banks and JP Morgan is now upgrading Commonwealth Bank to Neutral from Underweight. The target is raised to $74.34 from $72.64. The banks have ground away the 15% correction that was seen in May and June and now returned to levels of six months ago. Hence, the broker considers them all fully valued.

CSL ((CSL)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 5/1/1

Deutsche Bank thinks the decision to settle the long-running class action in the US is disappointing, given the company considers it did nothing wrong. Looking beyond this one-off settlement cost,  the recent share price weakness suggests to the broker a buying opportunity as the fundamentals remain robust. The rating is upgraded to Buy from Hold, given the upside potential to the revised price target of $71.00 (from $69.00).

Newcrest Mining ((NCM)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 0/4/3

Newcrest has announced that Sandeep Biswas will succeed Greg Robinson as CEO in the second half of FY14. Mr Biswas will be initially appointed as chief operating officer. Peter Hay will succeed Don Mercer as chairman from January 1 2014. Deutsche Bank thinks the changes will be greeted favourably by investors and it could be the start of further strategic decisions in the next couple of years. After reconciling September quarter production numbers the price target is increased to $11.00 from $10.70 and the rating is upgraded to Hold from Sell.

Independence Group ((IGO)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 3/2/0

Macquarie believes the ramp up of production at Tropicana will transform the earnings outlook for Independence. The rating has been upgraded to Outperform from Neutral. Delivering on Tropicana and improving cash flow at Jaguar/Bentley are the two positive catalysts that are expected to drive the stock in the next six months. The target is raised to $4.60 from $4.10.

Woodside Petroleum ((WPL)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 2/3/2

JP Morgan is revisiting oil price and foreign exchange forecasts. Also, new price target methodology aligns sector-relative recommendations with price targets that reflect an absolute return. After visits to LNG sites in Japan and South Korea the broker is more bullish about the tightness of global LNG markets through to 2018. The main potential beneficiary here is Woodside. The rating has been upgraded to Overweight from Neutral. The price target is raised to $39.60 from $39.34.

See also Woodside downgrade.

Downgrades

Bank of Queensland ((BOQ)) downgraded to Underperform from Neutral by Macquarie and to Neutral from Buy by UBS. B/H/S: 0/6/2

The FY13 earnings improvement was centred on lower impairments and Macquarie expects this to continue as the Queensland economy recovers. The broker believes the bank needs to improve its business model and its strategy will come under scrutiny in FY14. With the share price rally in the wake of the result the market has now more than fully priced success, and Macquarie thinks this is not a certainty as yet. The result was pre-announced, thus in line, and UBS was pleased with the quality in the detail. BOQ has been in "clean up" mode for some time, trying to overcome a troubled loan book. That clean up accelerated in the second half with non-performing loans falling by 20%. An expansion in net interest margin was also pleasing. BOQ is a "classic" turnaround story, the broker suggests, albeit a new growth phase will bring its own challenges.

Hillgrove Resources ((HGO)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 0/1/0

After updating for the recent capital raising, and amid lower copper price assumptions, JP Morgan has downgraded Hillgrove to Neutral from Overweight. The price target is reduced to 9c from 11c.

Santos ((STO)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 4/2/1

JP Morgan has revisited oil price and foreign exchange forecasts. New price target methodology aligns sector-relative recommendations with targets that reflect an absolute return. After visiting Japan's and South Korea's LNG sites the broker is more bullish on the tightness of global LNG markets through to 2018. While expecting Santos to perform reasonably well over the coming 12 months, as the risk profile around delivery of key projects PNG LNG and GLNG diminishes, the company's recent strong performance means the investment proposition is no longer as compelling to the broker. The rating is downgraded to Neutral from Overweight and the price target is reduced to $14.93 from $15.09.

Woodside Petroleum downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/3/2

CS analysts are predicting tougher times for shareholders in the Australian E&P sector with key players such as Woodside, Santos and Oil Search ((OSH)) being faced with natural decline in the output of their existing sources of production between now and 2020. The analysts have lost a lot of their enthusiasm for the sector. Further analysis suggests sustainable dividend yields will be a lot lower than what investors are currently assuming. On this basis, CS is not positive on Woodside as sustainable yields are poised to disappoint. The rating is downgraded to Underperform. Price target drops to $35.70 from $40.00.

See also Woodside upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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