Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features RESOLUTE MINING LIMITED, and other companies.
For more info SHARE ANALYSIS: RSG
The company is included in 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.

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 30 to Friday July 4, 2014
Total Upgrades: 13
Total Downgrades: 12
Net Ratings Breakdown: Buy 39.64%; Hold 43.58%; Sell 16.77%

The observation from previous weeks that the underlying picture remains one of ongoing support for equities in Australia remains intact, as local stockbrokers proved rather active during the week ending Friday, July 4. One contributing factor is that some analysts are still cutting back price estimates for bulk commodities and this is leading to eye-catching negative consequences for leveraged companies.

Other than that, resources (and related) stocks feature prominently on both positive and negative side of reviews and re-assessments. Remarkable is that overall changes to price targets remain overwhelmingly positive and the same goes for earnings forecasts ex-resources with the likes of Lend Lease, Scentre Group, Sirtex Medical and Brickworks -all industrials!- enjoying ongoing improvement.

Noteworthy are ongoing positive sentiment towards Henderson Group, a generally positive attitude towards Tatts Group and an even more cautious stance vis-a-vis Ansell, despite the latter announcing an in-depth restructuring.

FNArena registered 13 upgrades for the week against 12 recommendation downgrades.

Upgrades

Cardno ((CDD)) upgraded to Buy from Neutral by UBS. B/H/S: 1/3/0

The broker has refreshed estimates for Cardno and incorporates the acquisition of the PPI group. Additionally, UBS has adopted a blended valuation methodology. The broker's rating is upgraded to Buy from Neutral as the stock looks cheap at the current share price. The broker also expects Cardno to remain on the acquisition trail. The target is raised to $7.60 from $6.65.

Crown Resorts ((CWN)) upgraded to Buy from Neutral by Citi. B/H/S: 7/0/1

The stock has sold off 10% over the year to date, relating to slowing Macau data and industry-wide concerns. Citi thinks the issues in Macau such as smoking bans, new transit visa restrictions and union pay have created a lot of "noise" but these are ultimately distractions to the fundamental driver of profitability – gambling. Moreover, June is a seasonally slow month and presents investors with a buying opportunity ahead of the seasonal lift in October. Australian risks are fairly priced at current levels, in Citi's view. The broker lifts the rating to Buy from Neutral because of its more attractive valuation. The price target is lowered to $17.25 from $17.50.

Henderson Group ((HGG)) upgraded to Buy from Neutral by Citi and to Outperform from Neutral by Credit Suisse. B/H/S: 3/2/0

Citi is lifting the rating to Buy from Neutral, given the recent pull back in the share price and incorporating the acquisition of Geneva Capital Management into forecasts. The target is steady at $4.85. Henderson’s revenue growth looks compelling to the broker even though the stock is not cheap compared to its UK peer group. Credit Suisse is upgrading to Outperform from Neutral, raising the target to $5.00 from $4.80 based on an attractive valuation, strong growth prospects and upside earnings risk. Geneva Capital Management, the broker estimates, will be 3% accretive in FY15 and FY16. The stock is currently trading at a discount to Australian peers and in line with UK fund managers, which the broker thinks is conservative given the company's growth trajectory and higher performance fees.

OZ Minerals ((OZL)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 2/3/3

The first reserve estimate from Malu underground drives a modest positive upgrade to the broker's valuation. This was eagerly awaited as at resource grade, the project did not justify any capital. The reserve grade of 1.5% copper is above the broker's estimates but the reserve gold grade of 0.6g is lower. First stope ore is expected in the December quarter with ramp up to full production to take 12 months. Credit Suisse upgrades to Outperform from Neutral and raises the target to $4.65 from $4.60.

See also OZL downgrade.

Resolute Mining ((RSG)) upgraded to Buy from Neutral by Citi. B/H/S: 1/0/0

Citi is transferring coverage to another analyst. The rating is upgraded to Buy and the High Risk removed because of increased political stability in Mali, where the delivery of the Syama expansion project could push the production rate up substantially in FY15. Valuation has increased because the broker applies a lower discount rate of 10% compared with 14% previously, to reflect the de-risking in Mali and to align the stock with other gold company valuations. The target is raised to 78c from 70c.

Rio Tinto ((RIO)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 8/0/0

Rio is down 12% since its Feb peak, underperforming BHP Billiton ((BHP)) by 9.5% and the index by 14.6%, the broker notes, driven by the fall in the iron ore price. The broker believes iron ore is bottoming as Chinese steel mills will soon need to re-stock and is confident Beijing will maintain control over the Chinese property market. With Rio also set to provide capital management, the broker upgrades to Buy. Target rises to $81.50 from $70.00.

Santos ((STO)) upgraded to Buy from Neutral by UBS. B/H/S: 6/0/1

UBS has upgraded to Buy from Neutral after the tour of the GLNG operations. The broker is more confident in the delivery timeframe and capex estimates after 2015. More gas purchases coming through should also enhance cash flow. Meanwhile, the share price has significantly underperformed peers. The broker thinks the stock has more upside to the target than either Oil Search ((OSH)) or Woodside ((WPL)). UBS raises the target to $15.70 from $14.50.

Tatts ((TTS)) upgraded to Outperform from Neutral by Macquarie and to Buy from Neutral by UBS. B/H/S: 3/4/1

The company has reached an in-principle agreement with the Queensland government over a new framework for race and sports betting. Macquarie had expected a less favourable outcome but the earnings upside from the deal outweighs the fees it has paid for extending wagering related licences. The announcement comes a day after the company won in the Victorian Supreme Court and the broker's rating is upgraded to Outperform from Neutral. This issue has been a drag on the company's share price and UBS believes the outcome of the agreement is significantly better than expected. The stock is trading at a slight premium to the market which UBS thinks is justified. The rating is upgraded to Buy from Neutral.

Wesfarmers ((WES)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 1/4/3

JP Morgan is upgrading to Neutral from Underweight following a review of the investment thesis. The broker is increasingly confident in Bunnings and Coles and thinks there is a slight chance of capital management in FY14. Challenges in the industrial division and at Target weigh on the view. The price target is raised to $42.85 from $41.86. Earnings forecasts for FY14 are raised by 1.3% and for FY15 by 1.2%

WorleyParsons ((WOR)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 4/4/0

The broker upgrades to Buy from Neutral, aware of the risks in calling an end to the three-year downgrade cycle but more positive about the outlook for hydrocarbons investment in the next five years. Merrills also notes a greater reliance on engineering expertise to deliver more complex projects as well as structural margin improvement. The broker's forecasts incorporate a sustainable margin improvement, highlighting that every 50 basis points of improvement adds $1.50 to valuation. The target is raised to $20.60 from $17.25.

Downgrades

Amcom ((AMM)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/2/1

The broker has updated its Amcom valuation post the $40m placement, which will be used to fund a number of bolt-ons that should boost FY15. The broker is forecasting 16% FY14 profit growth driven by the core fibre business, but AMM's push into WA is hindered by the softer resource sector and the east coast Cisco deal is also running into client capex reluctance. The broker has trimmed earnings forecasts but left its target unchanged at $2.10, while downgrading to Neutral given upside potential is captured in the price.

Ansell ((ANN)) downgraded to Neutral from Buy by UBS. B/H/S: 1/3/4

Ansell has announced incremental cost savings through restructure with business and factories shut and around 30 brands cut. Ansell will also change providers of its resource planning systems in Europe, Middle East & Africa. ANN has confirmed FY14 guidance at the bottom end of the range given a limp market, but in line with consensus. The short term has been disappointing but more is offered in the longer term, the broker suggests. Target rises to $21.80 from $20.80 but given rigid outperformance of its industrial peers the last quarter, the broker has downgraded to Neutral.

AWE ((AWE)) downgraded to Neutral from Buy by UBS. B/H/S: 4/2/0

Tighter supply/demand balances are the key driver for the broker's increase to long-term oil price forecasts but the broker downgrades AWE to Neutral from Buy as the share price has risen 26% since late March.The price target is raised to $2.00 from $1.95.

Fortescue Metals ((FMG)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 5/3/0

Macquarie is downgrading to Neutral from Outperform, citing an underwhelming reserves report, slower pace of de-gearing and exposure to larger 58% discounts. The target is steady at $4.85.

National Australia ((NAB)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/5/2

The broker is moving NAB to Neutral from Outperform, given the material risk to its IT delivery time lines and risk to banking revenue from these delays. The price target is $35.17.

NRW Holdings ((NWH)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/4/0

The broker has reviewed the new contracts NRW has announced over the past six months and found new contracts in the second half FY14 are limited but work in hand for the first half FY15 is solid. The balance sheet is also solid but the issue now is one of securing new orders for the second half FY15, the broker suggests.  For the time being, the broker is pulling back to Neutral and lowering its target to $1.32 from $1.48.

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

JP Morgan has downgraded the rating to Neutral from Overweight, given reduced valuation support following a rise in the share price in recent months. Improved winter cropping conditions in Australia are being offset by the late start in North America. The broker has revised earnings forecasts for FY14 and FY15 down by 4.6% and 4.8% respectively. The target is raised to $4.90 from $4.80.

OrotonGroup ((ORL)) downgraded to Neutral from Buy by Citi. B/H/S: 2/1/0

Citi is downgrading to Neutral from Buy as the stock is no longer a bargain, having rallied 22% over the past four months. The FY14 result is unlikely to push the shares any higher, in the broker's opinion, as the latest season has been tough. While sales trends have been solid enough the company has had to promote to achieve a result. Citi observes total sales for FY14 will also be affected by refurbishments. The broker wants to see more evidence of success with new brands. The price target is raised to $4.30 from $4.20.

OZ Minerals ((OZL)) downgraded to Sell from Hold by Deutsche Bank. B/H/S: 2/3/3

The maiden reserve for Malu underground largely supports the previously released development plan and the majority of the parameters are similar to Deutsche Bank's assumptions. Operating costs and ongoing development capex are higher than initial estimates and further reduce the broker's negative valuation on the project. Hence, Deutsche Bank downgrades to Sell from Hold and lowers the target to $3.40 from $3.50.

See also OZL upgrade.

ResMed ((RMD)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 5/3/0

US Medicare has issued the competitive bidding round three proposals. Deutsche Bank thinks that while there is the possibility the proposals will be knocked back, if implemented widely they could materially slow mask sales growth in the medium term. The broker reduces the rating to Hold from Buy given the shares are  trading near the price target and valuation. The target is steady at US$52.00.

Tap Oil ((TAP)) downgraded to Neutral from Buy by UBS. B/H/S: 1/1/0

Tighter supply/demand balances are the key driver for the broker's increase to long-term oil price forecasts but UBS downgrades Tap to Neutral from Buy as the share price has risen 64% since late March. The price target is raised to 60c from 55c.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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