Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ENOVA MINING LIMITED, and other companies. For more info SHARE ANALYSIS: ENV

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 31 to Monday April 4, 2013
Total Upgrades: 21
Total Downgrades: 9
Net Ratings Breakdown: Buy 39.81%; Hold 43.69%; Sell 16.50%

Changes to stockbroker valuations and ratings during the week ending Friday, April 4th, were all about resources stocks, as both Credit Suisse and Deutsche Bank published major sector updates. While such updates always tend to have noticeable impacts both in negative and positive ways, this time the underlying message seems to be of predominantly positive nature.

In terms of broker ratings, the tally swung significantly into positive territory with 21 upgrades outnumbering 9 downgrades. A closer look at changes in price targets and profit estimates equally reveal the positives from these updates proved greater than the negatives.

For companies outside the resources space, something special was needed to earn a spot in FNArena's weekly overview. Goodman Fielder issued a profit warning, which always does the trick, while Seven West Group entered the oil and gas space with a long term focus. As analysts continue to zoom in on potential government plans to reform healthcare in Australia, both Primary Healthcare and Sonic Healthcare continue to feature as well. As does Tatts Group on the frequently recurring dilemma: cheap for a good reason or simply too cheaply priced?

Upgrades

Envestra ((ENV)) upgraded to Buy from Hold by UBS. B/H/S: 2/3/0

The broker thinks its time to buy Envestra and has raised the rating to Buy from Neutral. Despite the risk of delay or withdrawal of APA's ((APA)) offer UBS thinks the medium term outlook is appealing. Even if the merger fails, the share price should be trading at $1.25, to which the target is raised from $1.20.

Evolution Mining ((EVN)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 1/3/1

The broker has updated commodity price forecasts and expects gold and iron ore to slide over the medium term while base metals prices should pick up. The rating is upgraded to Hold from Sell on valuation. The target is raised to 75c from 55c.

Fortescue Metals ((FMG)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 7/1/0

The broker has updated commodity price forecasts and expects iron ore prices will improve in the second quarter but weaken over the medium term. The rating is upgraded to Hold from Sell based on valuation. The price target is raised to $5.00 from $4.60.

Independence Group ((IGO)) upgraded to Neutral from Underperform by Credit Suisse and to Buy from Hold by Deutsche Bank. B/H/S: 3/2/0

Credit Suisse has revised the outlook, given upgrades to nickel and gold price forecasts. There's a strong balance sheet so the broker thinks the issue is what to spend cash flow on. Expanding Tropicana will depend on further exploration success as will the mine lives of Long and Jaguar.  Deutsche Bank has upgraded Independence to Buy from Hold based on valuation. The broker forecasts iron ore and gold prices to slide over the medium term while base metals should pick up. The price target is raised to $4.20 from $4.10.

Karoon Gas ((KAR)) upgraded to Buy from Neutral by Citi. B/H/S: 4/0/0

Citi believes Karoon has the funds to continue with the Browse appraisal but will need to farm down either Brazil or Browse prior to commencing the Brazil appraisal in the second half. The broker considers the current discount in the share price, which stems from market concerns about farming down, is not warranted, given the value of the underlying assets. The rating is upgraded to Buy/High Risk from Neutral/High Risk. The target is reduced to $5.88 from $6.27.

Medusa Mining ((MML)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 0/1/1

The broker has updated commodity price forecasts and expects a slide in gold over the medium term. The rating is upgraded to Hold from Sell based on valuation. The price target is raised to $1.90 from $1.75.

Mincor Resources ((MCR)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/1/0

Mincor has defined extensions to one of its two key nickel mines at Kambalda. Exploration has confirmed a larger orebody at Mariners and Miitel exploration is about to commence. Regional exploration is underway. Anticipating an increase in reserves, the broker has lifted forecast earnings by 21% and 11% in FY14-15 and 80% in FY16-17. The broker sees production expansion coinciding with stronger nickel prices, as is forecast. Target rises to 70c from 60c. Upgrade to Outperform.

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

First half earnings were in line with the February guidance but Credit Suisse shares the view that coal markets are oversupplied and prices will be soft in the near term. Further cost reductions are difficult while haulage and energy costs remain high. The broker has lowered earnings forecasts by 50% over the next two years and 25% for FY16. The rating is upgraded to Neutral from Underperform given share price weakness. The price target is reduced to $3.10 from $3.50.

OZ Minerals ((OZL)) upgraded to Outperform from Underperform by Credit Suisse. B/H/S: 3/5/0

The broker is bearish on the copper price but for those with gold exposure there's compensatory risks. The rating is raised to Outperform from Underperform and the price target increased to $4.10 from $3.80.

PanAust ((PNA)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 6/0/0

Credit Suisse is bearish on the copper price but for those with gold exposure there are compensating risks. Hence, PanAust is a preferred stock and has been upgraded to Outperform from Neutral. The price target is raised to $2.20 from $2.10.

Panoramic Resources ((PAN)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 2/1/0

Panoramic is upgraded to Outperform from Neutral, given the retreat in the share price in recent weeks on exploration disappointment. The price target is reduced to 50c from 60c. Credit Suisse thinks the sell-off was overdone. There's gold upside from Gidgee and a modest reserve increase at Savannah that could add value.

Perseus Mining ((PRU)) upgraded to Outperform from Underperform by Credit Suisse. B/H/S: 4/1/0

Credit Suisse has updated commodity price and FX forecasts. Under the new assumptions the target rises to 65c from 50c and the rating is upgraded to Outperform from Underperform.

Primary Health Care ((PRY)) upgraded to Buy from Neutral by UBS. B/H/S: 3/4/1

UBS rates some sort of means test being recommended in the federal budget as highly probable and suspects more detail may be forthcoming after Western Australian elections. Given the uncertainty over what Medicare reforms will be made the broker has devised a worst and best case scenario. The upshot is that reform risk is priced in and the current price implies a 25% discount to peer multiples. The rating is upgraded to Buy from Neutral. The price target is unchanged at $5.25.

Regis Resources ((RRL)) upgraded to Outperform from Underperform by Credit Suisse and to Buy from Hold by Deutsche Bank. B/H/S: 3/3/1

Under new quarterly gold and currency price assumptions the broker has raised the target to $2.75 from $2.60 and such a target under the Credit Suisse ratings system means the stock is upgraded to Outperform from Underperform. Deutsche Bank has updated commodity price forecasts and expects gold to weaken over the medium term. The rating is upgraded to Buy from Hold based on valuation. The price target is raised to $2.70 from $2.65.

Silver Lake Resources ((SLR)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 0/1/1

Deutsche Bank has upgraded Silver Lake to Hold from Sell based on valuation. Taking a medium term view the broker expects a slide in gold but a pick up in base metal prices. The price target is raised to 40c from 30c.

Sonic Healthcare ((SHL)) upgraded to Buy from Neutral by UBS. B/H/S: 4/4/0

UBS considers the risk of offshore reform is moderating and Australia's reform risk is contained. The broker observes the sovereign risk hung over Sonic for more than seven years in some form or another and the situation now deserves a review. Historically, the company's model delivers over 30% in incremental margin on new volume but this leverage has been reduced or diluted by unrelenting reforms and cuts. UBS is upgrading to Buy from Neutral on valuation grounds. The price target is raised to $19.00 from $18.00.

St Barbara ((SBM)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 0/1/2

Deutsche Bank has plugged in a slide in gold prices over the medium term after the quarterly update on commodity prices. St Barbara is upgraded to Hold from Sell based on valuation. The price target is raised to 25c from 20c.

Tatts Group ((TTS)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 1/5/1

The broker observes a market downgrading of Tatts because of re-licencing concerns, the macro headwinds and a capex burden looming in wagering. This is driving a new Buy rating for the broker, upgraded from Neutral. Merrills considers Tatts a high quality defensive investment with credible growth opportunities. The price target is raised to $3.23 from $3.12.

Western Areas ((WSA)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/1/1

Western Areas is receiving its second rating upgrade in less than a month from Credit Suisse. The reason is increasing confidence that nickel prices are on the way up. The company is likely to have already retrieved its Cosmic Boy expansion plans from the archive, in the broker's opinion. Joint ventures with cash-strapped base metal juniors and M&A speculation are also in focus again. The rating is upgraded to Outperform from Neutral and the $4.00 target is maintained.

Downgrades

Aquila Resources ((AQA)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 0/2/1

The share price has been volatile, despite a lack of news, observes Credit Suisse. The broker struggles with the valuation and retains a $2.60 target. Coking coal prices have hit record lows and the appetite for new projects is limited, in the broker's view. Still, Credit Suisse thinks this is the best time to construct a major coal project as depressed prices are shaking out the high cost players and construction costs are coming down in Australia. The rating is lowered to Neutral from Outperform.

Bandanna Energy ((BND)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/1/1

The broker expects thermal coal prices to stay weak for longer. Hence the valuation declines. Credit Suisse sees plenty of value in the project on a long-term forecast but it's not clear if investors are willing to pay up the amount required, given the share price weakness. Credit Suisse assumes a $200m capital raising at 10% discount giving a valuation and target of 10c, reduced from 20c. The rating is lowered to Underperform from Neutral.

BT Investment ((BTT)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/2/1

The broker has increased FY14 estimates by 23%, largely because of strong performance fees. There's positive momentum in JO Hambro but Credit Suisse considers the stock expensive at current levels. The target is upgraded to $6.80 from $5.15 but the rating is lowered to Underperform from Neutral.

Endeavour Mining ((EVR)) downgraded to Neutral from Buy by UBS. B/H/S: 0/1/0

The company has reported a 2013 loss of $322m. The results were in line with the broker's expectations. The company reiterated production guidance for 2014. UBS is downgrading to Neutral from Buy, based on valuation. While the growth profile, cash costs and diversified operating base remain compelling, elevated gearing and limited free cash flow increase the risk in an uncertain gold price environment, in the broker's opinion. The price target is reduced to 96c from $1.00.

Goodman Fielder ((GFF)) downgraded to Underperform from Buy by BA-Merrill Lynch and to Hold from Add by CIMB Securities. B/H/S: 2/4/2

Goodman Fielder has revised down earnings guidance and Merrills thinks the cost reduction strategy is faltering. Aggressive reductions in the number of production facilities have strained the remaining network and the broker suspects this is leading to a need for reinvestment. Over the next 12 months the broker considers the downside risks will weigh and has downgraded to Underperform from Buy. The price target is reduced to 45c from 75c. The company's shock profit warning has triggered a downgrade to Hold from Add for CIMB. The analysts are disappointed. The turnaround program still has 24 months to run and further disappointments cannot be excluded. CIMB expects some growth in FY15.

Nexus Energy ((NXS)) downgraded to Underperform from Outperform by Macquarie. B/H/S: 0/0/1

A strategic review has failed to deliver any alternatives while liabilities have grown, thus there is nothing Nexus can do but accept the merger offer (highly conditional) from Seven Group ((SVW)) at the 65% discount, the broker suggests. Macquarie has cut its target to the 2c bid from 20c and downgraded to Underperform.

Seven Group ((SVW)) downgraded to Neutral from Overweight by JP Morgan and to Underperform from Neutral by Macquarie. B/H/S: 2/2/1

Seven Group has entered a merger agreement with Nexus Energy ((NXS)), taking advantage of a strong balance sheet to make an oil and gas play. JP Morgan has doubts about this as the company has no operating history with oil and gas, relying entirely on CEO Don Voelte's experience in the sector. The proposal also raises broader questions about future capital allocation and JP Morgan has downgraded to Neutral from Overweight. The target is reduced to $8.64 from $9.89. Seven's total expenditure to acquire Nexus is likely to be $450m for long dated assets, which may ultimately be valuable but will provide limited earnings in the short term, Macquarie notes. The main issue is the further complexity the acquisition adds to the conglomerate, making it difficult for the market to price SVW. The broker believes WesTrac is a quality business but sees the value of the franchise being diluted by this NXS move.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms