Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features AINSWORTH GAME TECHNOLOGY LIMITED, and other companies.
For more info SHARE ANALYSIS: AGI
The company is included in 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 24 to Monday March 28, 2013
Total Upgrades: 7
Total Downgrades: 6
Net Ratings Breakdown: Buy 39.57%; Hold 43.50%; Sell 16.93%

Stockbroker ratings changes for individual stocks remained pretty much in balance during the week ending Friday, March 28. FNArena registered six downgrades that were slightly outnumbered by seven upgrades. Most action took place in the retail sector, which is of little surprise given many in the sector release their financial results outside of the regular February season. In addition, the sector overall remains high on investor watch lists.

The real action, however, has been taking place in price targets and earnings forecasts. Investors worried about analysts downgrading their profit forecasts in the weeks ahead should take some comfort from the fact that upgrades are taking place, and they are noticeable with companies including Brambles, Macquarie, Orora and Australand enjoying firm upgrades to profit estimates and while resources stocks continue to dominate the negative side for profit estimates and price targets, the positive side continues to offer plenty of compensation through hefty price target increases for the likes of Kathmandu, Harvey Norman and -believe it or not- several resources stocks.

The stand-out performer for the week past was mid-tier telco TPG Telecom. Metcash takes the honours to the downside.

Upgrades

Ainsworth Game ((AGI)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 3/0/0

JP Morgan thinks the risk of a soft first half in North American unit sales has been overplayed. The broker continues to think there'll be strong growth across the company's installed base this year. Latin American could also surprise on the upside as Ainsworth continues to move into new jurisdictions. The broker observes Australian still accounts for 74% of earnings and the product continues to be the preferred purchase for most venues, with some upside envisaged in the hotel sector. The rating is upgraded to Overweight from Neutral and the target is steady at $4.50.

Aristocrat ((ALL)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 4/1/1

JP Morgan has returned from a tour of the US and received consistent feedback regarding improvement in Aristocrat's product performance in both the "for sale" and participation segments. The broker expects the positive trend to accelerate, given the anticipation of upcoming releases. Despite a strong run up in the shares JP Morgan still sees further upside is possible. The rating is upgraded to Overweight from Neutral and the target is raised to $5.85 from $4.85.

Aurizon ((AZJ)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 4/3/0

Soft coal pricing has dampened the outlook but Macquarie has decided to upgrade to Outperform from Neutral. Why? The attraction is the regulatory asset. The broker thinks growth in the coal market will stall until better pricing emerges through a lower Australian dollar or a higher coal price. For Aurizon this will reduce the capex needs associated with the network. Cash generation from limited growth should see yields move beyond the 60-70% pay-out yet leave the balance sheet with capacity. The target increases to $5.40 from $5.03.

JB Hi-Fi ((JBH)) upgraded to Buy from Neutral, Medium Risk by BA-Merrill Lynch. B/H/S: 5/2/0

The broker has raised FY15 and FY16 forecasts by 6% and 12% respectively. Merrills thinks JB Hi-Fi is a well managed business with world's best cost discipline. There are three avenues for earnings growth in the broker's opinion – new store openings, further roll out of JB Home and from the commercial business. Merrills considers current multiples undervalue the earnings potential over the next three years and this provides for an attractive buying opportunity. The rating is upgraded to Buy from Neutral and the target is lifted to $21.00 from $18.20.

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

The first half results were welcomed by Credit Suisse, as Kathmandu's momentum compared with relatively poor performances from competitors in the same outdoor retail segment. Gross profit margin expansion at 130 basis points also impressed the broker combined with product traction over the key second quarter. Credit Suisse has revised FY14 earnings forecasts up by 7.5% and FY15 by 11.3%. The rating is raised to Neutral from Underperform and the price target to NZ$3.75 from NZ$3.05.

Nufarm ((NUF)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 4/3/0

Nufarm's result beat the broker on a strong sales and margin performance from South America, offsetting weakness elsewhere. Working capital has greatly increased to fund the South American ramp-up which is pushing up debt. The broker believes this will be a focus for the market but does not believe a capital raising is on the cards. The broker is backing improving seasonal conditions in North America and Australia as well as South American earnings growth. Target rises to $4.90 from $4.80. Upgrade to Overweight.

Sigma Pharmaceuticals ((SIP)) upgraded to Neutral from Sell by UBS. B/H/S: 1/6/0

Sigma has bought Victoria-based wholesaler Central Healthcare for $24.5m which brings more exposure to the growing hospital distribution business as well as the declining community pharmacy distribution business, the broker notes. It's a small acquisition providing little financial impact but a bit more hospital distribution know-how, the broker suggests. Forecast earnings rise 1.7%. The acquisition otherwise appears to have drawn the broker's attention to current market multiples. A re-rating sees the broker lift its target to 65c from 60c and upgrade to Neutral.

Downgrades

Graincorp ((GNC)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 1/1/3

JP Morgan is downgrading to Underweight from Neutral. The recent outperformance of the stock has lead to reduced valuation support and the broker thinks, with additional competition coming from the Qube ((QUB)) joint venture, it will take out Graincorp's last remaining major regional monopoly. The price target is reduced to $7.85 from $8.50.

Metcash ((MTS)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 2/1/5

Macquarie believes, while the "fix it" part of the strategy is going to take at least 12 months to implement before the "invest for growth" comes to the fore, there is going to be little good news in the short term as the company continues to navigate a challenged landscape. While acknowledging it may be belated, Macquarie downgrades to Underperform from Neutral. Metcash will spend $100-125m over the next five years on refurbishments to the independent retailer stores. Macquarie thinks this is credible but requires co-operation from both suppliers and retailers, which is partly out of Metcash's control. The price target is reduced to $2.75 from $3.30.

Myer ((MYR)) downgraded to Neutral from Buy by Deutsche Bank. B/H/S: 0/7/1

Deutsche Bank has pulled back its rating for Myer to Hold from Buy, while reducing its price target by 14% to $2.80.

St Barbara ((SBM)) downgraded to Sell from Buy by Citi. B/H/S: 0/0/3

Lower near-term production guidance from Simberi has reduced the broker's net present value and, while the company expects the asset to become cash positive in December, Citi takes a more conservative line and assumes an additional six months of cash burn. The broker observes the turnaround of the Pacific assets is taking its toll but it's the cash-generating Australian assets and the broker's bullish gold forecasts that prevent the company from being a a candidate for a capital raising. The target is reduced to 30c from 50c.

Stockland ((SGP)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 4/1/2

Deutsche Bank has pulled back its rating for Stockland to Hold from Buy. The price targets drops by 10% to $3.83.

TPG Telecom ((TPM)) downgraded to Neutral from Buy by Citi. B/H/S: 1/2/3

Citi has evaluated TPG's first half and expects a ramp up in subscriber growth from the FTTB and NBN, with synergies from the integration of AAPT.  Forecasts are upgraded by 2% for FY14 and by 4% for FY15. While the company looks well positioned for superior growth the broker thinks the share price is reflecting the option value from FTTB and NBN and now looks fair value.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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