Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features CUSCAL LIMITED, and other companies.
For more info SHARE ANALYSIS: CCL
The company is included in ALL-ORDS and ALL-TECH

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 23 to Friday June 27, 2014
Total Upgrades: 8
Total Downgrades: 9
Net Ratings Breakdown: Buy 39.61%; Hold 43.67%; Sell 16.72%

Another week, another example of seemingly bad news at face value, but underlying there's market support building. FNArena registered more downgrades than upgrades for the week ending Friday, 27 June 2014, but this was almost exclusively due to Credit Suisse updating price estimates for commodities and, as a result, downgrading iron ore stocks as the projected down-cycle is anticipated to be fiercer, and quicker, than previously expected.

Downgrades for individual stock ratings, price targets and earnings estimates are all dominated by resources stocks, while on the positive side of the ledger, industrials shine with ongoing upgrades to price targets and earnings estimates. The positive side includes resources plays such as Western Areas, Santos and Independence Group.

That the weaker side should be obscuring the fact underlying trends remain positive, and therefore supportive of ongoing share market gains, deserves to be highlighted as investors start preparing for what might well turn out a pivotal corporate results season in August.

Upgrades

AGL Energy ((AGK)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 2/5/0

Post the Australian Competition Tribunal overturning ACCC objection of the acquisition of Macquarie Generation (or MacGen), Credit Suisse has pushed up its rating to Neutral and its price target to $15.80 from $15.50. One reason why the analysts are not more enthusiastic about it is they believe AGL is paying a rather full price. The analysts do acknowledge the prospect of the NSW government deregulating the sector opens up opportunities to increase margins. EPS estimates have been lifted, but DPS forecasts are unchanged.

Coca-Cola Amatil ((CCL)) upgraded to Neutral from Sell by UBS. B/H/S: 3/3/2

The broker has reviewed its valuation of the Indonesian and PNG business and despite weak execution by CCL, has upgraded by 36% on an increased enterprise value multiple, assuming FY14 will see a trough in earnings. That said, the broker expects CCL to post a weak FY14 result and notes the need for the company to cut costs, get its pricing right and diversify away from fizzy drinks. The upgrade is countered by a cut in target price to $9.20 from $9.30 but given the share price has fallen to below this target, the broker upgrades to Neutral.

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

The broker expects seaborne thermal coal markets to remain in surplus for the foreseeable future. Metallurgical coal forecasts are downgraded 4-7% for 2014-17. The rating is upgraded to Outperform from Neutral on share price weakness while the target is lowered to $3.00 from $3.10 as lower coal prices reduce valuation.

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

The stock has plenty of nickel leverage given a relatively high cost position. Credit Suisse has made significant upgrades to nickel price forecasts and this means FY14 earnings forecasts swing from a modest loss to a modest profit. The target is raised to 85c from 60c and the broker upgrades to Neutral from Underperform.

STW Communications ((SGN)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/0/0

Acquiring Active Display Group and maintaining FY14 guidance has triggered an upgrade to Outperform from Neutral and a 5c increase to Credit Suisse's price target to $1.60. The analysts note the acquisition is expected to be EPS accretive from year one onwards. The stockbroker also notes Active Display Group is Australia's largest provider of retail marketing solutions and should strengthen STW's position in the brand/in-store sector of the advertising market, both in Australia and abroad.

Tabcorp Holdings ((TAH)) upgraded to Buy from Underperform by BA-Merrill Lynch. B/H/S: 3/3/2

Tabcorp is upgraded to Buy from Underperform. Recent changes to race fields fees significantly tilt the competitive landscape towards the company, in the broker's view. Merrills expects competitors will see a material erosion in profitability and a more rational market is likely to evolve where incumbency is the key. Surprisingly, the broker notes Tabcorp has lost the case in the Victorian Supreme Court against the Victorian government on the licences dispute, but expects the decision to be appealed. The Buy rating is unaffected by the announcement. The broker thinks the stock's valuation is undemanding for the long-term defensive qualities in wagering. The price target is raised to $4.19 from $3.44.

Telecom Corp of NZ ((TEL)) upgraded to Outperform from Neutral by BA-Merrill Lynch. B/H/S: 2/5/0

Merrills is upgrading to Buy from Neutral and raising the target to NZ$3.10 from NZ$2.40, expecting earnings will bottom in FY14 prior to a return to growth and suggesting the stock is attractive at current levels. The new thesis is based on an earnings turnaround as the company completes a transformation that the broker expects to lead to increased dividends and scope for capital management.

Westfield Corp ((WFD)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/1/0

Westfield Corporation is the new look Westfield Group ((WDC)) post the Scentre Group ((SCG)) restructure. The focus on offshore assets will increase WFD's return on equity above that of the old WDC, the broker suggests, although in the near term the market will still have to digest dilutive asset sales. WFD is not a compelling proposition, the broker admits, but offers a return profile sufficient to prompt an "upgrade" to Outperform from the previous Neutral rating for WDC. There is also an outside risk of takeover. Adjusting for the restructure, target falls to $7.29 from $11.10.

Downgrades

Atlas Iron ((AGO)) downgraded to Underperform from Outperform by Credit Suisse and to Reduce from Hold by CIMB Securities. B/H/S: 1/4/3

Credit Suisse slashes the valuation because of the fall in the iron ore price and the expansion of grade discounts. The twin impacts reduce earnings forecasts by 60%. The broker has revised iron ore price forecasts down by 7-10%. Credit Suisse expects Atlas will incur net debt in FY15 but, provided it withholds dividends and does not incur additional capex, it should return to net cash in FY16. The target is lowered to 60c from 90c and the broker downgrades to Underperform from Outperform. Spot iron ore prices of US$93.70/t are implying material downside risk to Atlas Iron's earnings estimates. In the light of the downside risk CIMB is downgrading the rating to Reduce from Hold. The target is reduced to 50c from 68c. The broker estimates the company would be cash flow negative at US$80/t if the 58%/62% iron spread is sustained at the current levels.

Amcom Telecom ((AMM)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/1/1

As the financial year is drawing to an end, CS analysts have come to the conclusion that sales of CISCO HCS and cloud products have been slower than projected. CS is now taking the view sales of the Cisco product won't match expectations in the years ahead either, instead suggesting a much slower take-up. The results is for reduced profit projections. Given Amcom is not exactly trading on cheap multiples, the decision has been made to downgrade the rating to Underperform from Neutral. Target price dives to $1.87 from $2.15.

Arrium ((ARI)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/2/4

Credit Suisse is downgrading earnings and valuation, driven by lower iron ore price assumptions. The broker also reduces steel segment earnings forecasts and mining consumables tonnage. Cash realisation from continuing asset sales is now even more important and Credit Suisse downgrades to Underperform from Neutral, reducing the target to 61c from $1.25.

Fortescue Metals ((FMG)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 6/2/0

Credit Suisse has cut the stock's valuation in the face of a falling iron ore price and expanding grade discount. The broker's new iron ore price forecasts are 7-9% lower. Credit Suisse cannot see any catalyst to lift the share price in this environment and downgrades the rating to Neutral from Outperform. The price target is lowered to $5.00 from $7.00.

Mount Gibson Iron ((MGX)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 3/4/0

Credit Suisse has reduced the target price to 80c from $1.05 following a revision to iron ore price forecasts. The broker downgrades to Neutral from Outperform. The broker believes Mount Gibson remains relatively robust in a difficult market, underpinned by $500m in cash and the mining of higher grade ore that is less exposed to the quality discounts that peers are enduring.

OZ Minerals ((OZL)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/5/2

Credit Suisse has adjusted commodity price forecasts, with marginal increases to copper prices expected in 2014 but a lower price in 2015 and 2016 than previously forecast. Minor increases have also been made to the Australian dollar forecasts. Incorporating these updates, the broker downgrades OZ Minerals to Neutral from Outperform. The price target is raised to $4.60 from $4.10.

PanAust ((PNA)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 4/1/1

Credit Suisse has adjusted commodity price forecasts, with marginal increases to copper prices expected in 2014, but a lower price in 2015 and 2016 than previously forecast. Minor increases have also been made to the Australian dollar forecasts. The broker downgrades PanAust to Underperform from Outperform, given recent share price gains post the proposed takeover announced by its major shareholder. The target is steady at $2.20.

Treasury Wine Estates ((TWE)) downgraded to Sell from Neutral by Citi. B/H/S: 1/1/6

The company has announced more strategic initiatives, changing the release date for Penfolds and writing down US brands in FY14, which the broker thinks will pave the way for a sale of some of the portfolio. The broker thinks FY14 guidance should be achieved but expects the result will be low quality, propped up by a delaying of US de-stocking and heavy promotions. Citi thinks, in the short term, downside risk from a disappointing FY15 outweigh the chance of a higher bid for the company, which the share price implies. The broker downgrades to Sell from Neutral and retains a $4.70 target.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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