Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features COMPUTERSHARE LIMITED, and other companies. For more info SHARE ANALYSIS: CPU

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 11 to Friday August 15, 2014
Total Upgrades: 10
Total Downgrades: 14
Net Ratings Breakdown: Buy 39.24%; Hold 43.54%; Sell 17.22%

I have noted this quite a number of times this year, and the same story very much remains intact during the first stages of the domestic reporting season, but underlying support for Australian equities is strengthening, not weakening. Investors seeking to put this observation to the test should zoom in on what is happening with broker price targets and profit estimates, rather than being misguided by the fact that rating downgrades outnumber upgrades in just about every single week.

Ratings downgrades are but a logical result of rising share prices, which is why most stockbroker ratings are now grouped together in the Hold/Neutral/Marketweight basket.

For the week ending Friday August 18, 2014, FNArena registered 14 downgrades for individual stock ratings and only 10 upgrades. Considering that three companies attracted multiple upgrades and only one (Suncorp) two downgrades, the numbers look even worse underneath the bonnet.

The news appears to have become a tad worse for negative revisions to price targets, but there's undoubtedly good news in the observation there are but four stocks on the list, while the positive side of the ledger sees plenty of compensation. A similar picture dominates the tables for changes to estimates for corporate profits, even though the table for negative revisions is chock-a-block full and contains both disappointers Oz Minerals, McAleese and News Corp, as well as steady household staples such as Telstra, Henderson Group and Transurban.

The positive side offers plenty of offset with big increases for the likes of Bradken, Carsales.com and CSL. Even the number ten on the positive side, Goodman Group, still enjoyed a rise to consensus forecasts of nearly 6%. That's the good news that seems to be emerging from the current reporting season, with the obvious caveat it's relatively early days still.

Let's find out whether the coming two weeks can continue on the positive underlying trend.?

Upgrades

Bradken ((BKN)) upgraded to Add from Hold by CIMB Securities and to Outperform from Neutral by Macquarie. B/H/S: 3/4/0

Earnings were in line with CIMB's forecasts and the May trading update. The broker considers expectations around FY15 are reasonable and Bradken looks to be able to withstand the subdued environment better than most.The broker is increasingly confident around the retention of cost savings and upgrades to Add from Hold. Macquarie notes cash flow is solid and the company is having success with its manufacturing restructuring. Pricing pressure remains and demand is uncertain but the broker suspects a bottom has been seen. Rating upgraded to Outperform from Neutral.

See also BKN downgrade.

Computershare ((CPU)) upgraded to Neutral from Underweight by JP Morgan. B/H/S:  2/5/1

FY14 results were in line with expectations. JP Morgan is maintaining FY15 forecasts and believes the downside risk of further deterioration in margin income is less significant after the re-basing seen in the second half. Rating is upgraded to Neutral from Underweight as a new analyst takes up coverage, and the target is lifted to $12.45 from $11.15.

CSL ((CSL)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 6/1/1

The company's strength in its broad portfolio was in evidence in FY14 results, which were above Deutsche Bank's forecasts. The results have prompted Deutsche Bank to upgrade to Buy from Hold. Target is raised to $76.50 from $73.20. The broker considers CSL's success in beating its competitors may in part reflect more aggressive pricing but underlying margins appear to have improved as well.

Echo Entertainment ((EGP)) upgraded Hold from Reduce by CIMB Securities and to Neutral from Underweight by JP Morgan. B/H/S: 33/1

FY14 results were in line with expectations. Despite positive revenue growth in the second half continuing into FY15, CIMB has only increased FY15 and FY16 earnings forecasts by 1% each. The broker is encouraged by the positive growth trend and believes the group may be in the early stages of a turnaround. The rating is upgraded to Hold. The FY14 result beat JP Morgan's forecasts. The final dividend was also stronger than expected. Following significant upgrades to the earnings outlook, JP Morgan has upgraded its rating to Neutral from Underweight. Earnings forecasts have been revised up by 25.1% for FY15 and by 11.0% for FY16, given changes in win rate methodology.

Fletcher Building ((FBU)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 4/3/1

Deutsche Bank believes concerns about an earnings gap developing in FY15, given the end of some projects, are unfounded. The broker expects FY15 earnings growth of 5%. This may not be inspiring but in FY16 growth of 23.8% is forecast, driven by the Canterbury rebuilding and strength in Australasian housing. Deutsche Bank upgrades to Buy from Hold and reduces the target to NZ$9.85 from NZ$9.94.

REA Group ((REA)) upgraded to Outperform from Neutral by Credit Suisse and to Buy from Neutral by UBS. B/H/S: 3/3/1

Credit Suisse upgrades to Outperform from Neutral. FY14 results were above the broker's forecasts and FY15 earnings forecast has been raised by 7%. The broker believes the recent fall in the share price has created a near term buying opportunity. Price target is raised to $49.00 from $47.50. FY14 results were in line with UBS expectations. FY15-18 earnings estimates are lifted by 4-8% to factor in market based pricing, new product initiatives and the acquisition of a 17.2% stake in iProperty ((IPP)). UBS is upgrading to Buy from Neutral and lifting the target to $49.00 from $47.00. The broker envisages upside coming from delivering better value to both agents and vendors and success with new product.

Skilled Group ((SKE)) upgraded to Add from Hold by CIMB Securities. B/H/S: 4/1/0

The FY14 result was in line with the broker and provided more confidence in the outlook for FY15. CIMB acknowledges the risks from a new, unknown CEO and potential industrial action but finds the valuation is now too compelling.

Downgrades

Bank of Queensland ((BOQ)) downgraded to Underperform from Neutral by Macquarie. B/H/S:  0/6/1

CEO Stuart Grimshaw is resigning at the end of August to pursue a new non-banking opportunity in the United States. Chief operating officer John Sutton will take the helm while the board conducts a search. This is a surprise to the broker and means the CEO's growth strategy is probably up for review. As a result of the ongoing uncertainty and likely loss of momentum Macquarie is downgrading to Underperform from Neutral. Target is steady at $12.11.

Bradken ((BKN)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 3/4/0

The result was in line with expectations but the company did provide guidance in May. The positive in Credit Suisse's view is that FY15 should deliver earnings growth even with continued pricing pressure and flat revenue. The broker has made modest upgrades to earnings forecasts and believes Bradken could be an improving story. The main drawback is that most of that is taken into account already in the price. Rating is downgraded to Neutral from Outperform and the target is raised to $5.00 from $4.25.

See also BKN upgrade.

Crown Resorts ((CWN)) downgraded to Neutral from Buy by Citi. B/H/S: 6/1/1

MPEL Crown has reported 11% quarterly earnings growth, emphasising growth to 80% mass market earnings and subsequently high margins, the broker notes. But the rapid growth of mass market has now eased, leading the broker to downgrade forecasts. The broker has downgraded its Crown forecasts as a result, but notes an announced MPEL buy-back sends a positive signal of management confidence given increasing capex on new developments. The broker downgrades to Neutral.

CSR ((CSR)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 1/5/2

The broker is expecting CSR to deliver ongoing margin improvement in building products, but believes the market already has this factored in. The broker acknowledges short term improvement in aluminium but is less bullish longer term. CSR has rallied 62% over 12 months against a peer average 24%. The broker downgrades to Hold, dropping its target to $3.63 from $3.71.

Dexus Property ((DXS)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/7/0

Macquarie downgrades to Neutral from Outperform following FY14 results. The outlook is weaker than the broker was expecting, although the realisation of trading profits will underpin a higher dividend over the next three years.

GPT ((GPT)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 1/5/1

GPT has increased the FY14 earnings target towards the market's expectation of 3.5% and cost of debt has been revised down to 5.0% from 5.1%.  Credit Suisse believes the trajectory is uncertain and expects, as the year draws to a close, that the market will re-focus on growth into 2015. The rating is downgraded to Underperform from Neutral. Target is raised to $4.04 from $4.00.

Goodman Group ((GMG)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/4/1

JP Morgan has downgraded Goodman to Neutral from Overweight as it is trading close to target and the broker envisages development risks increasing. FY14 results were in line with the broker's forecast.

Henderson Group ((HGG)) downgraded to Neutral from Buy by Citi. B/H/S: 2/4/0

Henderson's result showed the spike in staff costs in the previous half did not ease as the broker expected, thus despite strong inflows and asset under management growth, the broker has cut its earnings forecasts by 8% and 7% in FY15-16. While HGG's medium term growth profile remain compelling, the broker expects a negative market reaction to the cost issue. Target falls to $4.45 from $4.85. Downgrade to Neutral.

JB Hi-Fi ((JBH)) downgraded to Hold from Add by CIMB Securities. B/H/S: 4/3/1

Softening underlying cash conversion is a concern for the broker. Sales growth of 3% is forecast for FY15. CIMB lowers FY15 profit forecasts by 7% and reduces the rating to Hold from Add. The broker notes a renewed focus on cost management that aims to offset revenue pressures but suspects this may not be enough. CIMB advises investors to wait for like-for-like momentum to steady to reconsider investing in the stock. Target reduces to $19.40 from $22.90.

PanAust ((PNA)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/4/0

JP Morgan has downgraded to Neutral from Overweight.  The broker believes the $2.30 target is fair and in line with GRAM's bid, but does not discount the possibility of a better offer from GRAM or another party.

Roc Oil ((ROC)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/2/0

JP Morgan is downgrading Roc Oil to Neutral from Overweight because the stock is trading at or near valuation following the 69c per share takeover offer from Fosun. A 65c target is retained.

STW Communications ((SGN)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 3/1/0

First half results were ahead of Macquarie's forecasts. After 18 months of poor cash flow the broker is no longer of the view that valuation is enough for the stock to outperform. Rating is downgraded to Neutral from Outperform. The stock requires a material positive catalyst, in the broker's view, and there is little on the horizon. The target is reduced to $1.40 from $1.80.

Suncorp ((SUN)) downgraded to Neutral from Buy by BA-Merrill Lynch and to Sell from Neutral by UBS. B/H/S: 1/6/1

The second half beat the broker's expectations and the dividend also surprised on the upside. Merrills now considers valuation is fair, rather than attractive, and downgrades to Neutral from Buy. Suncorp's result fell short of UBS but beat consensus. The special dividend was a nice surprise. But the broker is now downgrading to Sell. The broker suggests the majors have a difficult transition period ahead with regard to personal line pricing, Suncorp is unlikely to hit both revenue and return on equity targets, capital management is likely done now, three-year cash profit growth will be minimal and Suncorp is now fully valued.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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