Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features CREDIT CORP GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: CCP

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 August 4 to Friday August 8, 2014
Total Upgrades: 7
Total Downgrades: 12
Net Ratings Breakdown: Buy 39.15%; Hold 43.40%; Sell 17.45%

At face value, the story for the Australian share market remains one of noticeably more downgrades than upgrades. For the week ending Friday August 8, FNArena recorded 12 and seven respectively. But look beyond the persistent negative trend in stock ratings and a decidedly supportive picture emerges.

In terms of price targets, stockbroking analysts continue to show reluctance in cutting targets, unless they are genuinely forced to do it (and even then, the reductions tend to be rather mild). Recorded increases to price targets were mostly significant with stocks like Panoramic Resources, Ardent Leisure, Treasury Wine Estates and Caltex all enjoying solid increases during the week of at least 5% (and as high as 10% for Panoramic). Even the number eight on the list, Alacer Gold, still enjoyed an increase of 1%.

As a comparison, Henderson Group tops the target list on the negative side with a reduction of less than 2%.

It is a similar story on the earnings estimates side where positive increases significantly outshine reductions, with Alumina Ltd stepping into the limelight carried by an increase of no less than 67% in consensus EPS for the present financial year and with Ardent Leisure closing the list on position ten with an increase of nearly 4%. Reductions for the week remained of rather benign character, with exception of OceanaGold for which consensus dived by 34%.

The local reporting season is about to step up a gear this week. So too will analysts' responses and changes.

Upgrades

Alacer Gold ((AQG)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 4/2/0

The broker has upgraded the stock to Overweight from Neutral because of the underperformance of the shares relative to peers, believing Alacer to be the stand-out in the Australian gold sector. Some risks remain around the Copler sulphide project but this is partly offset in the broker's opinion by corporate appeal and the long life of the mine. Despite June quarterly production falling 6%, management has reiterated full year guidance. Price target is raised to $3.00 from $2.80.

Ardent Leisure ((AAD)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 4/1/0

JP Morgan has upgraded Ardent Leisure to Overweight from Neutral, noting the continuing roll out of Main Event – which is the main contributor to the broker's increased valuation – and acquisition of a further 8 clubs in WA. The company has raised $50m from an institutional placement and could raise up to $15m from a share purchase plan to fund the purchase and roll out. Pre-released FY14 results are above the broker's forecasts. Price target is increased to $3.01 from $2.71.

Credit Corp ((CCP)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 1/0/0

FY14 profit was broadly in line with the broker's forecast. JP Morgan expects the company to maintain earnings growth in the consumer lending business but envisages some near-term risks to industry returns in the PDL market. The stock has underperformed over the last 12 months and the broker upgrades the rating to Overweight from Neutral. The target is raised to $9.92 from $9.55.

Cromwell Group ((CMW)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 1/2/0

Deutsche Bank analysts are commending Cromwell management for selling assets in order to reduce gearing while competition for assets seems to be heating up. The stockbroker estimates Cromwell can sell another $300m in assets without endangering the 8% dividend yield for shareholders, as long as the payout ratio is lifted to 95%. As the shares have underperformed the sector by some 5% recently, a decision has been made to lift the rating to Hold. The price target jumps to $0.97 from $0.88.

James Hardie ((JHX)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 3/3/2

JP Morgan has revised US forecasts for the building materials sector to account for an expected short lived hiatus in activity. The broker upgrades to Overweight from Neutral with a revised price target of $16.70, from $13.80. The investment proposition is now more than ever a play on whether the company can reach its target of 35% market share and maintain a 90% fibre cement category share, in JP Morgan's view.

Tabcorp Holdings ((TAH)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/3/2

Second half earnings were very strong and Credit Suisse has upgraded FY15-16 by 3-4%. The broker observed wagering revenue momentum was excellent and good growth is still expected in FY15. Tabcorp has raised its pay-out ratio to 90% but will continue with its dividend reinvestment plan.

See also TAH downgrade

Treasury Wine Estates ((TWE)) upgraded to Neutral from Sell by Citi. B/H/S: 0/3/4

The broker has raised its price target to $5.20 from $4.70, in line with the revised offer from KKR. The bid price is fair in Citi's opinion. Rating is increased to Neutral from Sell as the share price is trading in line with the bid. The broker believes that risks within the industry should convince shareholders to accept the KKR offer.

Downgrades

Adelaide Brighton ((ABC)) downgraded to Underperform from Neutral by Credit Suisse, to Sell from Hold by Deutsche Bank and to Neutral from Overweight by JP Morgan. B/H/S: 0/5/3

Credit Suisse believes the acquisition of the company's largest independent cement customer is a defensive move to protect its most profitable South Australian market. The balance sheet is now fully utilised and the broker suspects special dividends are becoming more unlikely in the near term. The broker reduces its rating to Underperform from Neutral. This is not a reflection of asset quality but rather the belief that the macro outlook will not provide near-term relief and there is better value elsewhere. Adelaide Brighton's acquisitions of concrete and aggregate businesses in SA and Queensland are dilutive and expensive, in Deutsche Bank's view. There may be some synergies but the broker is not prepared to factor this in and downgrades to Sell from Hold. Adelaide Brighton has paid a full price for its recent defensive acquisitions, in JP Morgan's view, and risks still linger from the Cement Australia decision not to renew the supply contract from Port Kembla. With limited positive catalysts on the horizon, the broker is downgrading to Neutral from Overweight.

BWP Trust ((BWP)) downgraded to Sell from Neutral by UBS. B/H/S: 0/1/3

BWP's result and distribution were largely in line with the broker. No guidance was offered. The broker is impressed BWP was able to achieve favourable rent reviews in challenging conditions. Income growth and competition for assets are driving cap rate compression, but the broker believes the market is factoring in too much yield compression too soon for this perennial underperformer. Target rises to $2.36 from $2.29 but rating downgraded to Sell.

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

Crown has acquired a part interest in a 34.5 acre site in Las Vegas for US$280m. The company is partnering on a resort development on the site with construction to commence next year and the casino to open in 2018. Credit Suisse calculates that Crown will accumulate around $1.9bn in free cash flow after dividends between 2015 and 2020, excluding any impact from new projects. The broker downgrades to Underperform from Neutral on the share price appreciation. The target is unchanged at $16.30.

DUET ((DUE)) downgraded to Neutral from Buy by UBS. B/H/S: 2/5/0

Duet has re-contracted out its Dampier Bunbury Pipeline capacity ahead of planned regulatory changes in 2016, which the broker notes removes the pricing risk. With greater certainty over prices and volumes to 2020, DUE can now lock in its interest rate over the period. Interest cost savings will largely offset lost earnings in FY15-16, the broker notes. Target rises to $2.51 from $2.40. Rating nevertheless downgrades to Neutral given DUE's 20% rally over six months.

Energy Resources ((ERA)) downgraded to Reduce from Hold by CIMB Securities. B/H/S: 0/1/3

The first half loss was broadly in line with CIMB's expectations but operating cash flow was significantly weaker. Higher-than-expected cash burn has had a material effect on the broker's fundamental valuation. The prospective Ranger 3 Deeps now makes up 104% of the broker's valuation. With 21% downside to the current share price in the target – $1.05, reduced from $1.19 – CIMB downgrades to Reduce from Hold.

Henderson Group ((HGG)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 3/3/0

First half results were below the broker's forecasts, largely because of a higher tax rate and lower contributions from discontinued operations. Earnings growth is more uncertain, despite strong funds under management growth. The broker has downgraded profit expectations by 11% for FY14 and by 7-8% for the outer years. Rating is downgraded to Neutral from Outperform and the target lowered to $4.70 from $5.00.

Panoramic Resources ((PAN)) downgraded to Neutral from Buy by UBS. B/H/S: 1/2/0

Panoramic's quarterly production was flat on the previous quarter but beat the broker's forecast by 14%, with Lanfranchi posting a record quarter. Costs rose but remained below the broker's forecast and net cash and cash flow are providing the funding for Savannah North exploration. The broker believes both Lanfranchi and Savannah offer exploration upside potential but a run in the share price sees the broker pull its rating back to Neutral. Target rises to $1.00 from 90c.

Roc Oil ((ROC)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 3/1/0

Macquarie does not believe Roc Oil offers the same value compared with 12 months ago and has downgraded the rating to Neutral from Outperform on valuation grounds, retaining a 70c price target. Forecasts remain under review, pending a successful merger with Horizon Oil [since failed – Ed].

Tabcorp Holdings ((TAH)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 3/3/2

The FY14 result was marginally ahead of the broker's forecasts with cash flow stronger than expected. JP Morgan has increased earnings forecasts for FY15  by 2.7%. Despite a solid result, JP Morgan has made a valuation call and downgraded the rating to Neutral from Overweight. The stock is now trading 2% below the broker's valuation. The price target is raised to $3.70 from $3.65.

See also TAH upgrade

Tap Oil ((TAP)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/2/0

The broker is downgrading to Neutral from Outperform on valuation grounds. The company may be again on the verge of becoming a producer but the broker observes there is just 15% upside to the unchanged 70c target.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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