Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies.
For more info SHARE ANALYSIS: NAB
The company is included in ASX20, ASX50, ASX100, 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 July 7 to Friday July 11, 2014
Total Upgrades: 11
Total Downgrades: 14
Net Ratings Breakdown: Buy 39.65%; Hold 43.51%; Sell 16.85%

The week ending Friday, July 11, proved a carbon copy of the past few weeks as far as broker views and ratings are concerned. At face value, it appears the Australian share market is weathering a storm of cuts and downgrades, but underneath the surface a more positive story continues developing. Above surface, it's all about brokers adjusting for lower-than-expected bulk commodities prices in the first two quarters of the calendar year.

An additional negative story during the week was provided by the shock announcement of future loss of commercial relationship between Macquarie University and stock market darling Navitas. On the positive side, equities remain supported by ongoing positive developments at companies including Transurban, Sirtex Medical, insurance companies and other financials (such as Challenger), accompanied by turnaround fortunes for energy stocks and selected miners.?

Upgrades

Crown Resorts ((CWN)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 7/1/0

Declining Macau revenues have sent Crown's share price south of late and the broker has lowered earnings forecasts by 4-9% but expects MPEL to rebound after overcoming a bad debt situation and as gambler focus redirects from the World Cup. In Australia, VIP has not seen the same weakness as in Macau but soft consumer sentiment has hit mass gaming. The share price has nevertheless traded down to towards the broker's target which prompts an upgrade to Neutral. MPEL's current forward earnings multiple is below average and may offer an attractive entry point for some, the broker suggests. Target rises back to $16.30 from a short-term trading target of $15.00.

GUD Holdings ((GUD)) upgraded to Add from Hold by CIMB Securities. B/H/S: 2/2/2

The broker thinks the stock offers a compelling opportunity. Revenue headwinds have largely played out and interim growth should be driven by factors the company can control. The stock is trading at a 15% discount to the market and top line conditions are close to a cyclical bottom. A more positive view is warranted, in CIMB's opinion, and the rating is upgraded to Add from Hold. The target rises to $7.20 from $6.15.

Myer ((MYR) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/3/1

Credit Suisse upgrades to Outperform from Neutral, believing the stock to be inexpensive with a defensible dividend yield. The broker also expects the financial performance will improve in FY15. The target is raised to $2.40 from $2.25. Credit Suisse thinks recent management changes provide an opportunity to create more proactive and internationally benchmarked merchandise and marketing strategies, as well as elevate e-commerce.

National Australia Bank ((NAB)) upgraded to Buy from Neutral by BA-Merrill Lynch. B/H/S: 2/4/2

Recent earnings trends may be poor but the broker is comforted by the fact that earnings expectations have been re-based. The stock now looks attractive and Merrills expects that meeting lower estimates will be enough to drive outperformance. The broker upgrades to Buy from Neutral and retains a $35.00 target. Merrills observes the price/earnings discount to peers has been greater over the past 20 years but only when NAB was in a pickle, such as with Homeside, FX options and UK credit.

Navitas ((NVT)) upgraded to Buy from Neutral by Citi and to Neutral from Sell by UBS. B/H/S: 1/6/0

Macquarie University will take pathway courses in house from 2016. Citi notes this is the first pathway contract loss for Navitas and its most significant program. The broker downgrades FY16 earnings forecasts by 7% and reduces the target to $5.60 from $6.45. Despite the loss, the broker thinks university program earnings will be sustained by a recovery in Australian and UK programs and ongoing growth from North America. The broker thinks the stock is attractive and upgrades to Buy from Neutral. The earnings impact is not expected to be felt until the second half of 2016 and UBS has reduced estimates to reflect the amendment. The broker thinks the announcement questions the company's core business model but the 31% fall in the share price is a little overdone. Therefore, with the stock trading at a slight discount to the revised target, the rating is upgraded to Neutral from Sell.

See also NVT downgrades

Nufarm ((NUF)) upgraded to Neutral from Sell by Citi. B/H/S: 3/5/0

The broker has changed analysts for Nufarm and has increased the target to $4.65 from $4.20 and upgraded to Neutral from Sell. Earnings forecasts have been trimmed to reflect US weakness but balance sheet improvements and the prospect of solid FY15 growth, particularly in Latin America, should offer share support.

QBE Insurance ((QBE)) upgraded to Buy from Neutral by Citi. B/H/S: 6/2/0

Citi is upgrading to Buy from Neutral. Target reduces to $12.80 from $13.20. There are still some risks for QBE but the broker thinks market fears are overdone. The broker thinks the share price fall since the FY13 result means the stock is now reasonably attractive on a 12-month view. The leverage to interest rates remains significant and, under certain circumstances, a 1% rise in rates could add nearly 40% to earnings. The precise timing is hard to call but the broker's global team suspects rate hikes could be close at hand in the UK and within a 12 months timeframe in the US.

Wotif.com ((WTF)) upgraded to Neutral from Sell by Citi and to Neutral from Underperform by Credit Suisse. B/H/S: 0/7/0

Expedia has offered $3.30 a share for Wotif.com and secured an option to acquire 19.9% from the founders in the case that a rival bid is made and Expedia matches the offer. Citi thinks the likelihood of a rival bid is low. The broker thinks it is a good time for Expedia to increase its investment in Australia when domestic tourism is at cyclical lows given the strong Australian dollar. The rating is upgraded to Neutral from Sell and the target to $3.06 from $2.60. The board and key shareholder support for the Expedia offer and the trading update confirms the increasing competitive pressure on Wotif.com in Credit Suisse's view. The broker thinks the bid is opportunistic, given Wotif.com was trading at over $4.00 a share back in December. Credit Suisse raises its rating to Neutral from Underperform and the target price to $3.30 from $2.48.

Downgrades

Acrux ((ACR)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 0/0/1

Competition is intensifying, generics are entering the testosterone market and Macquarie has decided to downgrade to Underperform from Neutral. Generics that are entering the market will not be exactly interchangeable with Axiron but Macquarie suspects they will be used as a bargaining tool to reduce branded prices. The broker is also concerned about the continuing decline in script volumes in the US, driven by safety concerns. The target is lowered to 70c from $1.00.

Arrium ((ARI)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/3/4

Macquarie takes a look at Arrium ahead of the quarterly update. The second half has been challenging with a rally in the Australian dollar and weakness in the iron ore price. Macquarie thinks the stock is fairly priced and does not represent compelling value. There could be further downside risk given the leveraged balance sheet and the broker is inclined to downgrade to Neutral from Outperform. The price target is lowered to 87c from $1.57.

Alumina ((AWC)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 2/3/3

The broker is downgrading to Hold from Buy based on valuation. The fundamentals remain positive, but Alcoa reported weaker margins in the June quarter. Deutsche Bank still expects margins to more than double over the next three years but believes the stock is building in most of this upside. The price target is reduced to $1.45 from $1.47.

Coca-Cola Amatil ((CCL)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 3/3/2

Macquarie is of the opinion that the soft drink industry is a major target for heath authorities in the obesity epidemic. Obesity is now the leading cause of preventable death in developed countries. The company has few offsets, although water is benefitting from the consumer switch from carbonated soft drinks, and Macquarie thinks volumes will remain subdued for some time. The price of the stock does not reflect the extent of the challenges, in the broker's view, hence the rating is downgraded to Underperform from Neutral and the target reduced to $9.10 from $10.30.

Emeco ((EHL)) downgraded to Hold from Add by CIMB Securities. B/H/S: 0/4/1

CIMB has downgraded FY15 forecasts by 17% because of the exit of Indonesia and the commencement of new contracts in Australia. The equity raising issue may be off the agenda now the company has accessed the US private placement market but there is no immediate positive catalyst, in the broker's view. That said, there is no major deterioration in the operating environment expected. CIMB expects the stock to be range bound for some time. Rating is downgraded to Hold from Add and the target is reduced to 19c from 37c.

Energy Resources ((ERA)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 0/2/2

ERA's production report revealed results for Ranger Deeps drilling that the broker considers to be poor. It appears that mining Deeps will be more expensive than earlier assumed and the broker suggests upside potential from the project now appears to have "vanished". ERA is a binary call, the broker points out, hinged on whether Deeps goes ahead or it doesn't. The latter is becoming increasingly more likely, hence the broker has double downgraded to Underperform from Outperform and dropped its target to 50c from $1.50.

Iluka Resources ((ILU)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 5/2/1

Macquarie thinks Iluka is poorly placed in a rapidly evolving market where large scale, upstream ilmenite producers are set to benefit. The broker acknowledges there is a lot to like about the stock as it offers leverage to rising mineral sands prices but envisages significant risk to medium-term earnings estimates.The broker downgrades to Underperform from Neutral. The target is $7.50.

Navitas ((NVT)) downgraded to Neutral from Outperform by Credit Suisse, to Hold from Buy by Deutsche Bank and to Neutral from Outperform by Macquarie. B/H/S: 1/6/0

Termination of the existing partnership agreement with Macquarie University represents a material loss, in the broker's view. Although Navitas should retain some of the earnings under new arrangements post 2016, the bigger concern is that other universities may decide to follow Macquarie University's lead. All up it represents a material step up the risk profile. Credit Suisse thinks the macro story behind international tertiary education is unchanged but would prefer to sit on the sidelines until the longer-term impact of the decision is understood. Rating is downgraded to Neutral from Outperform and the target lowered to $5.35 from $8.40. Deutsche Bank has downgraded to Hold from Buy as the revision to the contract with Macquarie University will lower earnings significantly from FY16 and raises risks associated with the company's university pathway program model. The broker believes Navitas has scope to pursue new growth options as the cancellations do not come into effect until 2016. The target is lowered to $5.10 from $7.60. A material loss in Macquarie's opinion and the broke downgraded FY16 earnings forecasts by 7.6%. The rating is downgraded to Neutral from Outperform and the target reduced to $5.60 from $7.80.

See also NVT upgrades

Pacific Brands ((PBG)) downgraded to Sell from Neutral by UBS. B/H/S: 1/2/4

Pacific Brands' CEO has quit over musical differences, or apparently a lack of support for his desire to spend more on marketing. The broker wonders whether more executives might follow him out the door. Meanwhile PBG has sought outside advice, and the broker believes it will press on with cost restructuring and other strategies while courting takeover suitors before appointing a new leader. The broker can't see anyone stepping up, and has downgraded to Sell as the business deteriorates. Target retained at 50c.

Regis Resources ((RRL)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 0/6/1

Ahead of the company's quarterly update, although no date has been set, Credit Suisse aligns long-term grade assumptions with FY15 guidance and adds a notional $20m transaction value for McPhillamys. Credit Suisse expects the next reserve statement to reflect a decline in reserve grades to those outlined in the FY16 guidance. Grade issues have been well documented and are weighing on the share price. The broker downgrades to Underperform from Neutral and reduces the target to $1.72 from $1.90.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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