Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features STOCKLAND, and other companies.
For more info SHARE ANALYSIS: SGP
The company is included in 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.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday March 17 to Monday March 21, 2013
Total Upgrades: 12
Total Downgrades: 8
Net Ratings Breakdown: Buy 39.38%; Hold 43.73%; Sell 16.89%

Once again, the positive undertone for the Australian share market is kept intact by the mere absence of negative news. The week ending Friday, March 21, showed stockbrokers remain reluctant to reduce valuations and targets unless they are forced to do so following a company profit warning, as in the case of Metcash, or yet another round of downgrades to commodity prices, as has been the case for Whitehaven Coal.

A similar picture holds up for future profits and dividend forecasts. Any changes made remain benign, with profit warning-impacted Metcash the exception. Many resources companies enjoyed positive momentum during the week, but given analysts have started to adjust commodity prices downwards, this may well change in the week(s) ahead.

All in all, changes made to ratings, targets and/or forecasts remain company specific but pending adjustments to commodity prices forecasts can potentially put resources back in focus. CIMB and BA-ML have already taken the knife to their forecasts, predominantly for coal, copper and iron ore. No doubt, others are about to follow.

Upgrades

Australand ((ALZ)) upgraded to Buy from Underperform by BA-Merrill Lynch and to Outperform from Neutral by Credit Suisse. B/H/S: 2/3/1

CapitaLand has sold down its stake and Stockland ((SGP)) has taken up 19.9% of the company. Merrills expects Stockland will move beyond this stake, justified on both financial and long-term strategic merits. Merrills notes the interests of the two companies are aligned, operating in complementary sectors of the market. The risk to the Buy call is if Stockland stays a passive stakeholder. In this event, Merrills does not think the company's presence on the register would have a meaningful impact on valuation. Credit Suisse would not be surprised if a full bid follows. The broker assumes greater divisional level synergies under a Stockland bid. The broker raises the target to $4.37, given the high probability of acquisition. The rating is upgraded to Outperform from Neutral.

Commonwealth Bank ((CBA)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/2/4

Macquarie thinks investors are leading the housing recovery but first home buyers are coming back. The broker cites data that shows the recovery in housing investment is being driven by middle to high income young individuals rather than older speculators. The broker thinks first home buyers are choosing to invest rather than occupy properties. CBA is believed to be the best placed to take advantage of this younger mid to high income demographic, with a market share of 36%. The broker upgrades to Outperform from Neutral and the target is $81.12.

David Jones ((DJS)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 0/6/1

DJs' result beat the broker on improved revenue growth from reduction in the cost of doing business and execution on the Future Strategic Direction Plan. (Just as an aside, could a label be any more tautological?). On the improved operational performance and the possibility of a change of control, the broker upgrades to Neutral. A nil-premium merger with Myer ((MYR)) remains more possible than probable, the broker suggests, albeit the likelihood of engagement on this proposal has increased. It's in the share price anyway.

See also DJS downgrade.

Evolution Mining ((EVN)) upgraded to Neutral from Underperform by BA-Merrill Lynch. B/H/S: 1/2/2

Merrills has upgraded gold price forecasts but accepts there's some risk that gold may give back some recent gains in the second quarter. With that in mind the broker thinks there's a buying opportunity that may present. The rating is upgraded to Neutral from Underperform and the target is raised to 95c from 58c.

Lend Lease ((LLC)) upgraded to Buy from Neutral by Citi. B/H/S 6/2/0

Lend Lease is the preferred tenderer in a joint venture with Bouygues on the NorthConnex road design/construction with the contract having an estimated value of $2.65bn and due to start in 2015. The broker thinks, in addition to this win, the company's bid for several large road projects is likely to contribute to strong engineering growth from FY16. Citi also expects Lend Lease may benefit from the restructure of Leighton ((LEI)), given potential management distraction. The rating is upgraded to Buy from Neutral and the target is raised to $12.85 from $11.90.

Myer ((MYR)) upgraded to Neutral from Sell. B/H/S 1/6/1

Myer's first half margin decline has resulted in Citi downgrading earnings forecasts by 10% for FY14 and by 4% for FY15. The broker thinks sales growth is still challenged and the prospects for a merger with David Jones ((DJS)) are dim, given Myer will need to offer at least 20% more than its first offer thereby trading off any synergies. The rating is upgraded to Neutral from Sell because of recent share price weakness. The price target is steady at $2.40.

Nufarm ((NUF)) upgraded to Outperform from Neutral by Credit Suisse and to Neutral from Sell by UBS. B/H/S: 3/3/1

The company is restructuring the Australian business with $13m in cost savings to be achieved by FY16. Credit Suisse expects working capital management to improve with fewer warehouses to stock. Nufarm is also reviewing its NZ plant. Credit Suisse see value in the stock beyond FY14 but the current year is beset by drought and this may persist into the next growing season. UBS is upgrading to Neutral from Sell following a period of underperformance in the share price. Nufarm has announced a review of the Australian operations that should align the company better for the upcoming challenges, in the broker's opinion. UBS has incorporated the savings, plus a modest turnaround in margins over the next three years to reflect better seasonal conditions.

Regis Resources ((RRL)) upgraded to Neutral from Underperform by BA-Merrill Lynch. B/H/S: 1/4/1

The broker has increased gold price forecasts out to 2016 but notes that gold could give back some of the recent gains in the second quarter and that short-term risk to prices could present a buying opportunity. Merrills has upgraded the rating to Neutral from Underperform and increased the target to $2.50 from $2.35.

Stockland ((SGP)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/0/2

Stockland has acquired a 19.9% stake in Australand ((ALZ)). Credit Suisse was not surprised at this and expects a full bid will follow. The broker believes the acquisition offers potential earnings accretion and Stockland should be able to add value beyond yield spread investing, given the synergies. The rating is upgraded to Outperform from Neutral, given strong organic growth, earnings quality and upside from an ALZ acquisition. The price target is raised to $4.25 from $4.23.

Western Areas ((WSA)) upgraded to Outperform from Underperform by Credit Suisse. B/H/S: 3/2/0

Western Areas offers a pure play exposure to high grade nickel, which the broker notes is a rarity. The immediate low-cost growth options are also another rarity in Credit Suisse's view. The stock is not expected to underperform if prices keep rising towards US$9/lb but the broker warns further gains are dependent on uncertain macro supply events. The rating is upgraded to Neutral from Underperform and the target is raised to $4.00 from $3.00.

Downgrades

Atlas Iron ((AGO)) downgraded to Underperform from Buy by BA-Merrill Lynch. B/H/S: 1/5/1

The broker has revamped commodity price forecasts and is materially negative on the trajectory for coal, iron ore and, to a lesser extent, copper, as demand risk becomes elevated. Hence, a high cost player in iron ore like Atlas, which lacks economies of scale, is in line for a downgrade. The rating is downgraded to Underperform from Buy and the target reduced to 80c from $1.30.

David Jones ((DJS)) downgraded to Underperform from Neutral by BA-Merrill Lynch. B/H/S: 0/6/1

The first half was in line with the broker's expectations. Merrills found flat gross margin a disappointment, while strong top line growth and cost savings helped drive earnings in the department store. This was not able to offset the 53% decline in financial services earnings. Merrills thinks the stock, currently trading at a 25% premium to its peers, is overvalued. The rating is downgraded to Underperform from Neutral.

See also DJS upgrade.

Doray Minerals ((DRM)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0

Doray posted first half results in line with Macquarie's estimates. The broker is downgrading the recommendation to Neutral from Outperform, given the share price move since November. Target is maintained at 90c. The broker observes the company is fast positioning as one of the lowest cost, high-grade producers in the ASX-listed gold sector.

Incitec Pivot ((IPL)) downgraded to Hold from Add by CIMB Securities. B/H/S: 4/3/0

The share price has rallied along with a stronger DAP price and CIMB has adjusted earnings estimates across the company's businesses, but at a group level the forecasts are largely unchanged. With the DAP price above the broker's long-run forecasts, CIMB is reluctant to capitalse the current price. The stock is considered fully valued and the rating is downgraded to Hold from Add. The price target is raised to $2.97 from $2.75.

Independence Group ((IGO)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 2/2/1

Independence has been downgraded to Underperform from Outperform, having performed strongly since January on the back of rising nickel prices. Credit Suisse finds it hard to get the valuation to stack up and does not expect strong nickel price rises in the near term. The target is raised to $4.00 from $3.70.

Kathmandu ((KMD)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/0/1

Credit Suisse is downgrading the rating to Underperform from Neutral. The broker thinks trading conditions in the first half have been more challenging when compared to the momentum in the prior corresponding half, particularly as it relates to consumer confidence and disposable income in Australia.

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

The broker has reviewed the outlook for Metcash and retains concerns over the revenue declines and the "almost insurmountable" problems with executing on the strategic plan. JP Morgan expects the dividend may be reduced further and thinks valuation is expensive. Despite the underperformance in the share price JP Morgan is downgrading the rating to Underweight from Neutral. The target is reduced to $2.67 from $3.35.

Sydney Airport ((SYD)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/4/1

February traffic data showed a continuation of January's theme – strong international and soft domestic. Passenger growth was ahead of capacity growth and that will generate minor upgrades to Macquarie's forecasts, but the broker still finds the outlook challenging. Upside remains but the broker thinks the core business is capturing much of the value at current assumptions. The rating is lowered to Neutral from Outperform.

Whitehaven Coal ((WHC)) downgraded to Neutral from Buy by BA-Merrill Lynch. B/H/S: 6/1/0

The stock has been downgraded to Neutral from Buy as the broker's base case and long-term coal price forecasts are reduced. Softness in coal prices will subdue any positive announcements surrounding the Maules Creek project, in Merrills' opinion. Earnings forecasts are downgraded by 50% for FY15 and by 28% for FY16. The price target is reduced to $1.90 from $3.85.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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