Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features AMCOR PLC, and other companies. For more info SHARE ANALYSIS: AMC

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 June 2 to Friday June 6, 2014
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 39.15%; Hold 44.30%; Sell 16.55%

This week we are forced to open our weekly update with an apology. The stats and tables say FNArena registered seven upgrades and seven downgrades for ratings for individual stocks in the week ending Friday, June 6. Truth is, however, we registered nine upgrades outnumbering seven downgrades. Is there an unknown force in play that wants us to prevent from publishing some positive news about the share market?

We can only guess, but I suspect there's a gremlin in our administrative system somewhere. We will investigate. In the meantime, if anyone feels compelled to start a conspiracy theory about it, be our guest.

While changes in ratings are skewed to Buys and Sells instead of the usual Neutral/Holds this time around, there doesn't appear to be a general theme upon which investors can draw conclusions. The underlying trends for price targets and earnings estimates still seem negative, on net balance, but the positive news remains that those companies responsible for most of the damage to the downside would not be high on anyone's Must Have In My Portfolio list.

McAleese remains a serious contender for this year's IPO From Hell award, while Southern Cross Media's woes are not exactly new. The same can be said of companies such as Nufarm, Bradken and Programmed Maintenance. While the local IT sector continues doing it tough, it has now emerged the primus inter pares inside that sector, SMS Managament and Technology, is unlikely to escape from rising headwinds for the sector in general.

Upgrades

Amcor ((AMC)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 3/5/0

The broker is upgrading the recommendation to Neutral from Underweight on the improved valuation and risk/return, increasingly confident in the company's ability to deliver on the acquisition pipeline and less onerous expectations for growth and cash flow. Earnings forecasts are ratcheted down by 0.2% and 2.1% for FY14 and FY15 respectively. The target is raised to $10.60 from $10.00.

Bendigo & Adelaide Bank ((BEN)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 2/5/0

Macquarie suspects the bank has more catalysts, with a disciplined M&A approach. The stock is also cheaper than its peers and the outlook for the regional banks is improving. Earnings forecasts have been upgraded by 2%, driven by better margin outcomes. The rating is upgraded to Outperform from Neutral and the target is $11.70.

BT Asset Management ((BTT)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/3/0

Macquarie has upgraded to Outperform from Neutral, owing to the recent decline in the stock price the broker's valuation upgrade. BTT may be trading at a premium to its immediate peer group but the broker thinks the stock should find support from a positive equity market outlook. The target is lifted to $7.50 from $5.80.

GUD Holdings ((GUD)) upgraded to Outperform from Neutral. B/H/S 1/3/2

Credit Suisse is convinced the company can turn around and thinks consensus estimates give GUD little credit for its plans. The broker's confidence is underscored by the fact the strategy is cost driven and includes areas where the company has prior experience. The broker's rating is upgraded to Outperform from Neutral and the target raised to $6.00 from $5.77.

McAleese ((MCS)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 2/2/0

Macquarie believes earnings risks are stabilising for McAleese with FY14 earnings guidance now $82-85m. Asset sales and skipping a dividend should allow net debt to fall to a projected $225m by September 2014. A lessening of financial risk signals to the broker an upgrade to Neutral from Underperform is in order. The target is raised to 65c from 47c.

Platinum Asset Management ((PTM)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/2

The stock has sold off in recent weeks as a result of the underperformance of the technology-heavy portfolio. Performance fees in the second half of FY14 are expected to be anaemic. Despite this the broker considers the stock is attractive at the current valuation and the fundamentals of fund flows have improved. Hence, the rating is upgraded to Outperform from Neutral and the target is maintained at $7.27.

Seven West Media ((SWM)) upgraded to Add from Hold by CIMB Securities. B/H/S: 7/1/0

CIMB is upgrading to Add from Hold in the light of recent decline in the share price. The target is lifted to $2.30 from $2.23. The broker finds it hard to ignore the value in the stock and is predisposed to those media stocks that are taking market share, particularly given a cautious outlook on the near term advertising market. Network Seven may lose some market share in the near term but the broker thinks the business is strong and the current share price reflects a loss of market share that is excessive.

Sonic Healthcare ((SHL)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 4/4/0

The broker is comfortable that any impact on domestic operations from a passage of the government's GP co-payment proposal, while negative, can be managed. As the share price has fallen 5% relative to the market since the budget the risk seems to be priced in and Deutsche Bank also makes positive revisions to earnings forecasts. The rating is upgraded to Buy from Hold and the target raised to $19.00 from $17.50.

UGL ((UGL)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 2/2/4

Deutsche Bank believes the market is undervaluing UGL on concerns regarding the level of sustainable earnings in engineering. Debt levels are also a concern but the broker thinks debt is past its peak and the company will not have to raise equity to prevent a breach of covenants. The broker has revised up revenue forecasts for engineering and increased engineering margins for FY15. Deutsche Bank believes the market is undervaluing the company, whether it decides to sell, de-merge or retain DTZ. The broker's rating is raised to Buy from Hold and the target is lifted to $8.25 from $6.72.

Downgrades

Envestra ((ENV)) downgraded to Reduce from Hold by CIMB Securities. B/H/S: 0/4/1

Independent directors have recommended CKI's all-cash offer at $1.32 a share, thereby terminating the scheme agreement with APA ((APA)). CIMB is not surprised, given the fullness of the bid, and suspects APA is unlikely to make a counter bid. The broker recommends taking profits and downgrades the rating to Reduce from Hold while raising the target to $1.32 from $1.17 to reflect the bid price.

Monadelphous ((MND)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 0/2/5

Macquarie has reviewed the fundamentals underpinning the stock. Mona has had mixed success in the award of recent work and the potential for large scale new contracts in resources and oil & gas appears limited. The big issue for the broker is FY15. Revenue is now forecast to decline 10% compared with prior forecasts of a 5% decline. The broker envisages a declining earnings outlook for the next few years with risks to the downside and downgrades the rating to Underperform from Neutral. The target is lowered to $17.60 from $18.00.

OZ Minerals ((OZL)) downgraded to Underperform from Outperform by Macquarie. B/H/S: 2/4/2

Macquarie is downgrading its recommendation to Underperform from Outperform and lowering the target to $3.80 from $4.50, adjusting forecasts after a site tour. Increases to underground capital expenditure have translated to material cuts to earnings forecasts. Macquarie believes OZ Minerals has the potential to generate its own market capitalisation in cash in around five years, but how it allocates that cash represents the key catalyst for the stock. The broker's base case assumes that the company proceeds with development of Carrapateena on a 100% owned basis.

Qantas ((QAN)) downgraded to Hold from Add by CIMB Securities. B/H/S: 2/5/1

The broker observes the share price has performed well since the start of 2014, aided by expectations of a moderation in capacity growth. Still, CIMB notes current conditions remain particularly weak, with excess capacity and softening leisure demand in the second half for domestic airlines. CIMB is downgrading Qantas to Hold from Add, with the stock now trading near its $1.39 target and the market pricing in the benefits of an improved capacity outlook. CIMB advises investors to wait for a cheaper entry point or more tangible signs of yield improvement.

Southern Cross Media ((SXL)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 3/3/2

The company has downgraded profit guidance for FY14, expecting profit to be down around 10% after forecasting a flat outcome previously. Deutsche Bank is concerned and expects further headwinds in FY15, noting gearing remains high and presents a risk if there are further downgrades to come. The broker reduces the rating to Hold from Buy and lowers the target to $1.20 from $1.70.

SMS Management ((SMX)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/1/2

The company's recent guidance for the second half earnings to be 5-15% higher than the first half implies a 30-40% decline in underlying earnings against the prior comparative half. Hence, Credit Suisse's FY14 forecasts are downgraded 23%. There are a number of factors that support an improved FY15 outlook but would require no further decline in utilisation or organic earnings, in the broker's opinion. Credit Suisse downgrades to Underperform from Neutral and reduces the target to $3.35 from $4.20.

Telstra ((TLS)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 2/4/1

Optus has announced some aggressive new mobile pricing plans and Credit Suisse expects Telstra to react. The broker trims mobile revenue growth to 2.1% from 3.8%, to reflect this expectation. The stock is trading close to the broker's revised valuation and the rating is downgraded to Neutral from Outperform. The target falls to $5.61 from $5.70.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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