Weekly Recommendation, Target Price, Earnings Forecast Changes

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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 18 to Friday August 22, 2014
Total Upgrades: 20
Total Downgrades: 42
Net Ratings Breakdown: Buy 38.40%; Hold 43.80%; Sell 17.80%

By Rudi Filapek-Vandyck

Things turned noticeably more negative during the week ending Friday, 25 August 2014. This as a result of share prices setting new six year highs and the local reporting season unveiling ongoing weakness from the weaker parts in the domestic share market.

FNArena registered no less than 42 downgrades in ratings for the week, significantly outnumbering the 20 registered upgrades. Some companies attracted more than one change in rating and on the positive side we find Ansell, ARB Corp, QBE Insurance and Tox Free Solutions. There are many more in a comparable position on the negative side: ASX, BHP Billiton, CFS Property, GWA Holdings, Investa Office Fund, Mirvac Group, Mt Gibson, Tatts and Wesfarmers.

Cannot remember how long it has been since I witnessed a reporting season in which BHP Billiton received multiple downgrades.

In similar fashion, consensus changes to price targets and EPS estimates on the negative side carry more weight than they have in weeks prior. This thanks to disappointing releases from the likes of Transpacific Industries, Arrium, Mt Gibson, Mineral Resources, QBE Insurance, Breville Group and others.

Luckily for Australian investors, there's plenty of offset on the positive side with companies such as Vocation, Alumina Ltd and ERM Power stealing the limelight.

Upgrades

Alumina ((AWC)) upgraded to Buy from Neutral by UBS. B/H/S: 2/1/5

Accounting for the significant items which led to a loss, Alumina's underlying earnings solidly beat the broker. Lower costs were nevertheless a result of a timing issue and AWC has not net reinstated its dividend, suggesting more cash flow is needed. The broker was on Neutral, fearing the Indonesian ban on bauxite exports may be removed. But eight months on the ban remains in place despite a change of government. Assuming this continues, the broker suggests it's only a matter of time before alumina prices rise in concert with bauxite prices. Upgrade to Buy.

See also AWC downgrade.

Ansell ((ANN)) upgraded to Add from Hold by CIMB Securities and to Neutral from Underperform by Credit Suisse. B/H/S: 2/3/3

Ansell's FY14 results were in line with CIMB's estimates. The broker notes that while economic conditions remain sluggish, the company shows signs of growth, with a focus on high return profit improvements which should drive earnings momentum. However, the broker has made a modest cut to FY15 and FY16 forecasts. The stock is upgraded to Add from Hold. Following an FY14 result that was in line with forecasts Credit Suisse upgrades to Neutral from Underperform. The broker has rolled over valuation and used a lower AUD rate. Hence the target increases to $21.30 from $19.00. Growth remains patchy and varies by geography. That said, Credit Suisse notes a large number of new products that are to be launched in FY15 which should assist.

ARB Corp ((ARP)) upgraded to Hold from Reduce by CIMB Securities and to Neutral from Underperform by Credit Suisse. B/H/S: 0/5/0

FY14 earnings were ahead of the broker. CIMB expects the better-than-expected gross margins can be maintained, despite ongoing revenue headwinds. The broker upgrades FY15 forecasts by 3% but suspects valuation is full, acknowledging the prospect of capital management will provide some support. Rating is upgraded to Hold from Reduce and the target is raised to $12.25 from $11.20. ARB's FY14 results were just ahead of consensus, with second half earnings not the disappointment Credit Suisse expected. The broker expects capex to remain elevated in the short term, driven by investment in further warehousing capacity and renovation at its Moorebank sales facility. Stock is upgraded to Neutral from Underperform.

Asciano ((AIO)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 8/0/0

Macquarie acknowledges competition is ramping up on the wharves and terminals but does not expect Asciano to be impacted to a great extent. The company has higher market share than the broker previously attributed, thanks to Macquarie's new shipping database which suggests Hutchison's growth is coming at the expense of DP World. Container volume growth looks to be remaining at current levels, driven by a high Australian dollar and an improving consumption outlook. Macquarie believes now is the time to buy the stock. Target is revised up to $6.74 from $6.00 and the rating upgraded to Outperform from Neutral.

Arrium ((ARI)) upgraded to Hold from Reduce by CIMB Securities. B/H/S: 1/4/3

Arrium's result fell 8% short of the broker but there was a positive surprise in the shape of a greater than expected reduction in debt. ARI is executing well on its strategy, the broker suggests, at least those factors it can control. With uncontrollable factors proving volatile (ie iron ore), the broker is still worried about the debt level. Target rises to 87c from 74c on new tax rate assumptions and the rating upgraded to Hold from Reduce as a result. But only buy ARI, the broker suggests, if you are an iron ore bull.

CSG ((CSV)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 2/0/0

FY14 turned out better than expected with restructuring and cost reductions accompanied by improvements for the core operations. Macquarie believes management is making good progress on its turnaround strategy which means the growth outlook looks strong. Macquarie upgrades the stock to Outperform from Neutral, while bumping up the price target to $1.31 from $1.00. FY15 EPS estimate has gone up by 8%.

Fletcher Building ((FBU)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 5/1/2

FY14 results were in line with the broker's forecasts. Credit Suisse now has a high degree of confidence in the 9% earnings growth forecast for FY15 and has upgraded the stock to Outperform from Neutral. The price target of NZ$10.80 is retained.

See also FBU downgrade.

James Hardie ((JHX)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/2/2

Despite consensus suggesting for a 10% drop in earnings, Credit Suisse views the number of drivers behind the weak first quarter result as largely one-off. The broker believes the stock will return to a more positive trajectory, despite a broader soft patch in US housing. Price target is reduced to $14.60 from $15.20 but rating is upgraded to Outperform from Neutral.

Macquarie Group ((MQG)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 3/4/0

JP Morgan has upgraded Macquarie to Neutral from Underweight despite the expected upgrade to full year earnings not eventuating. While FY14 earnings may still see tailwinds from a recovering M&A cycle and growth in the domestic mortgage book, the broker views the key swing factor to be the timing and quantum of upcoming performance fees from the Macquarie funds division. The price target remains at $54.35.

Newcrest Mining ((NCM)) upgraded to Neutral from Sell by Citi. B/H/S: 1/4/3

The broker upgrades to Neutral from Sell, given the success with cost cutting and FY14's revelation of first positive cash flow since FY10. Citi raises the target to $11.16 from $9.86. The broker expects FY15/16 to be spent boosting throughput on Lihir and awaits more insights from the investor briefing in October.

OZ Minerals ((OZL)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 2/4/2

The pre-feasibility study suggests Carrapateena still hangs in the balance, Deutsche Bank notes, given encouraging headline metrics still only imply an internal rate of return of 13%, even being optimistic about copper prices and operating expenses. Securing a funding partner at the right price could prove difficult. The PFS release leads to de-risking hence the broker's target rises to $4.00 from $3.40, prompting an upgrade to Hold from Sell.

PanAust ((PNA)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 3/3/0

Interim performance turned out slightly weaker than Deutsche Bank's expectation. Of more importance, notes the broker, was the news that at least two parties remain actively engaged in due diligence with a resolution possible by early October. Rating upgraded to Buy while the target improves to $2.55 from $2.40.

QBE Insurance ((QBE)) upgraded to Add from Hold by CIMB Securities and to Neutral from Underperform by Macquarie. B/H/S: 6/2/0

QBE's result was in line with the July profit warning. The result nevertheless takes a back seat to the announced capital raising, aimed at reducing gearing, and a business restructure. While CIMB has reduced forecast earnings on dilution, gearing was of primary concern. Now that it is being addressed the broker believes value will outweigh risk. Upgrade to Add. QBE has downgraded FY14 target margins to 8-9%, in line with Macquarie's expectations. The company will undertake a US$750m equity raising, US$700m tier 2 subordinated debt issue and a partial IPO of the LMI business. North American agencies will be fully divested. Macquarie believes the recapitalisation and asset realisation will be well received as the balance sheet is de-risked. Initiatives should reduce gearing to 30% for FY15. Rating is upgraded to Neutral from Underperform and the target lifted to $11.40 from $11.20.

SMS Management & Technology ((SMX)) upgraded to Add from Hold by CIMB Securities. B/H/S: 1/1/2

FY14 results were weak, but in line with consensus. CIMB notes a stabilising of earnings. A mix of cost savings and renewed discipline on Victorian utilisation rates will drive a return to growth in FY15 for the first time in three years, in the broker's opinion. The broker upgrades to Add from Hold but emphasises this is not a call on a cyclical recovery, rather just signs of conditions stabilising. Target is raised to $4.30 from $3.98.

Tox Free Solutions ((TOX)) upgraded to Add from Hold by CIMB Securities and to Buy from Neutral by UBS. B/H/S: 3/1/0

FY14 earnings missed CIMB's forecast. Margin compression was the main reason, driven by a changing mix in the business. The broker would rather wait until infrastructure projects start, but believes the valuation is compelling enough to upgrade to Add from Hold. The result missed UBS as momentum slowed in the second half, partly, but not entirely, due to a timing issue. The ongoing delay to the start up of the Chevron contract and ongoing softness in the Australian economy leads to a cut in earnings forecasts. That said, the broker still expects 17% compound growth over FY14-17. Given the timing issue re Chevron, the broker suggests the share price response was overdone.

Treasury Wine ((TWE)) upgraded to Hold from Reduce by CIMB Securities. B/H/S: 0/4/3

FY14 results were in line with expectations. However, the broker believes the company missed an opportunity to provide more tangible long-term targets for earnings recovery. CIMB considers the prospect of a successful bid is increasing. The target is raised in line with the current offers – to $5.20 from $4.25. Rating is neutralised to Hold from Reduce.

Downgrades

Alumina ((AWC)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 2/1/5

The interim report appeared in line with market expectations but Credit Suisse thought it messy, dominated by the Point Henry smelter closure. There's lots happening with AWAC but at the end of the day, alumina prices need to rise to make Alumina Ltd a positive investment proposition. CS believes alumina prices look buoyant on the back of Indonesian export restrictions but the share price has rallied hard. As the target is intact at $1.60 there is but one logical decision to make: downgrade to Underperform.

See also AWC upgrade

AMP ((AMP)) downgraded to Neutral from Buy by Citi. B/H/S: 0/7/1

First half result was a little better than expected. Citi notes wealth protection is stabilising. Cross cycle valuation rises and the broker lifts the target to $6.10 from $5.90. This then suggests there is insufficient upside potential and the rating is downgraded to Neutral from Buy.

ASX ((ASX)) downgraded to Underperform from Neutral by Credit Suisse and to Neutral from Overweight by JP Morgan. B/H/S: 0/4/4

FY14 results missed the mark for Credit Suisse on both profits and dividend. Estimates are cut on reduced revenues and higher costs plus more depreciation. Partially based upon subdued activity levels, the broker finds the outlook for growth looks quite challenging. Downgrade to Underperform. As the company tries to defend revenues that were once taken for granted, the cost of shifting its business model towards new offerings is increasing amidst a drop off in core revenues, JP Morgan notes. The benefits of elevated capex will take some time to flow through, and in the meantime the broker sees lower levels of market volatility persisting. Downgrade to Neutral.

BHP Billiton ((BHP)) downgraded to Hold from Add by CIMB Securities and to Neutral from Outperform by Macquarie. B/H/S: 3/5/0

FY14 earnings were slightly below consensus. Confirmation that coal and onshore petroleum are underperforming prior expectations has led CIMB to cut near-term earnings forecasts. Forecasts have not been adjusted to strip out the planned asset spin off, as yet. In light of the uncertainty around the details of a de-merger the broker downgrades to Hold from Add. FY14 was broadly in line with Macquarie, albeit in combination with a tepid increase of 4% in dividends and the absence of a share buyback in return for a spin-off of non-core assets. Macquarie supports the board in making long term oriented decisions and notes that in a cyclical industry such as mining, the board's objectives of stability can only be achieved through a strong balance sheet. The rating has pulled back to Neutral from Outperform.

Breville Group ((BRG)) downgraded to Hold from Add by CIMB Securities. B/H/S: 3/2/0

Results were broadly in line with CIMB's estimates but the headline masked some negative trends in North America. The unexpected departure of the CEO was also a negative surprise. The broker downgrades FY15-16 forecasts by 7% and lowers the target to $7.42 from $9.84. Rating is downgraded to Hold from Add as the broker awaits further clarity around the US business.

CFS Retail ((CFX)) downgraded to Sell from Neutral by Citi and to Underperform from Neutral by Macquarie. B/H/S: 0/3/4

FY14 results were in line with Citi but FY15 guidance was below. Citi considers the stock to be in a difficult position. organic growth has slowed and negative leasing spreads in FY15 could represent an even bigger headwind. The stock is trading near multi-year highs with a worsening operating outlook. The rating is downgraded to Sell from Neutral. FY14 distributable income was marginally ahead of Macquarie's estimates. With a weak outlook, the stock trading at a significant premium to valuation and a distribution policy in excess of free cash flow, Macquarie downgrades to Underperform from Neutral. Target is raised to $2.12 from $2.02.

Coca-Cola Amatil ((CCL)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 2/2/4

First half figures disappointed Credit Suisse. The broker has double downgraded CCL, questioning its strategy of continued commitment to the Indonesian franchise. Earnings are now the focus for Credit Suisse as it can no longer ignore the fact that further downgrades may drag on the share price. Price target is reduced to $9.00 from $10.80 which is materially below valuation.

Charter Hall Retail ((CQR)) downgraded to Underperform from Neutral by Credit Suisse and to Underperform from Neutral by Macquarie. B/H/S: 0/4/3

Charter Hall's FY14 results were just shy of consensus and FY15 guidance was disappointing. Credit Suisse has downgraded the stock to Underperform from Neutral but raised the target price to $3.73 from $3.70. Charter Hall Retail's FY14 was close to expectations and guidance for the new year confirms growth in FY15 is likely to be modest, comment analysts at Macquarie. The analysts believe CQR offers a relatively defensive yield, supported by neighbourhood shopping malls, but investors have probably been a tad too eager of late. The rating has now been pulled back to Underperform from Neutral.

Commonwealth Bank ((CBA)) downgraded to Neutral from Buy by Citi. B/H/S: 1/5/2

Citi analysts have made the Big Call: from here onwards the banks in Australia will no longer outperform the broader market. The analysts have taken a longer term view on the sector and concluded some serious headwinds are building. The downgrade for CBA means Macquarie Group carries the broker's last remaining Buy recommendation in the sector. Price target has been cut to $80 from $83.70.

Fletcher Building ((FBU)) downgraded to Underperform from Neutral by Macquarie . B/H/S: 5/1/2

FY14 was in-line with consensus, but it beat Macquarie. Alas, the analysts think consensus for the years ahead is too bullish and thus downgrades should follow. Macquarie predicts this will continue to dominate price action. Given the above, and the fact the shares are quite expensive ("at a premium"), Macquarie thinks it's best to pull back to Underperform from Neutral. Target NZ$8.25.

See also FBU upgrade.

GWA Group ((GWA)) downgraded to Hold from Add by CIMB Securities and to Underperform from Neutral by Credit Suisse. B/H/S: 1/3/2

GWA's result was in line with recent guidance but slightly misled, given a lower tax rate. The earlier suspension of the dividend brought gearing down comfortably, CIMB notes. Recent trading feedback suggests GWA is heading into FY15 with solid growth. The impending sale of Dux and BriVis will dilute earnings growth but also provide for potential capital management, the broker suggests. After a solid share price run, the broker downgrades to Hold. Compositionally, comment analysts at Credit Suisse, the FY14 report proved weaker than expected. Yes, there is a lot of leverage in the business, they concede, but the upside has already been captured in the share price. Earnings have been lifted further out, but reduced shorter term. Target lifts to $2.95 from $2.83. Rating downgraded to Underperform from Neutral.

Investa Office ((IOF)) downgraded to Neutral from Buy by Citi and to Sell from Neutral by UBS. B/H/S: 1/4/2

FY14 results were in line with forecasts. Citi believes the stock is delivering reasonable growth despite a difficult operating environment. The stock is considered fair value at current levels. Potential corporate activity has been speculated on for some time but the broker does not believe it likely at current pricing. Rating is downgraded to Neutral from Buy. FY14 results were in line with UBS. Positive aspects were an increase in net tangible assets of 3.4% over six months, a strong balance sheet and some leasing success. Negatives were soft net operating income growth and rises in vacancy rates, albeit in line with the market. UBS expects Investa Office to trade on break-up value, given corporate activity and takeover rumours. The rating is downgraded to Sell from Neutral.

Invocare ((IVC)) downgraded to Sell from Neutral by Citi and to Sell from Neutral by UBS. B/H/S: 1/3/2

First half result was below Citi's optimistic forecasts. Market share losses that negatively impacted FY13 have been stemmed and the number of deaths, from a severe winter flu season, have rebounded at the start of the second half. The company is confident growth will continue in the remainder of the year. Citi likes the business but awaits a cheaper entry price. Rating is downgraded to Sell from Neutral following the recent rally. First half was in line with UBS, driven by a 35 basis point improvement in earnings margin. UBS raises FY14 estimates but notes this is more than offset by higher net interest expense. The company is well run and poised to benefit from demographics but, with the share price up 8.6% since the result was announced, the broker believes execution is reflected in near-term multiples and reduces to Sell from Neutral.

Mermaid Marine ((MRM)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/4/0

A new analyst assumes coverage with a Neutral rating, downgraded from Outperform, and a $2.20 target, reduced from $3.64. The company faces two difficult years in its operations. The broker expects Chevron, which contributed 43% of group revenue in FY13, will increase its contribution in FY14. Credit Suisse assumes Mermaid Marine will win Wheatstone and Ichthys construction support and envisages limited upside risks to forecasts.

Mirvac ((MGR)) downgraded to Neutral from Buy by BA-Merrill Lynch, to Neutral from Outperform by Credit Suisse and to Underperform from Neutral by Macquarie. B/H/S: 1/5/1

Mirvac's FY14 results were in line with expectations. Merrills has downgraded the stock to Neutral from Buy as, despite the company's investment portfolio continuing to outperform peers, the broker views this as fully priced in. Growth is likely to be more incremental, with returns from new releases not reaching the bottom line until FY17 or FY18. Credit Suisse has downgraded to Neutral from Outperform following the release of FY14 results in line with expectations. It was the guidance for 1-3% growth in FY15 that disappointed, given the strong conditions in residential markets. CS notes there are several factors impacting on financial performance this year, which explains the tepid growth guidance, and believes the shares remain attractive on a relative comparison with peers. FY14 results were consistent with Macquarie's expectations. The broker likes the leverage to a strong housing market but finds the value proposition a hurdle. Macquarie believes the expansion in commercial development will keep making it harder for overall earnings to grow substantially. The broker downgrades to Underperform from Neutral.

Mount Gibson Iron ((MGX)) downgraded to Hold from Add by CIMB Securities and to Hold from Buy by Deutsche Bank. B/H/S: 1/6/0

FY14 results were slightly ahead of the broker's forecast. Sales guidance of 6.6-7.0mt compares with 9.7mt shipped in FY14 and is also in line with expectations, given the planned closure of Tallering Peak. Rating is downgraded to Hold from Add. CIMB revises target price methodology, lowering the target to 80c from $1.10, based on a 25% risk-weighted discount to valuation. FY14 earnings were below Deutsche Bank's forecasts. Final dividend of 4c was below the broker's 6c forecast. Deutsche Bank notes two key reasons for the company not distributing its cash. The first is the fact that Koolan Island will be negative cash flow in FY15. The second is that acquisition opportunities are looking more attractive. Deutsche Bank is downgrading to Hold from Buy.

Retail Food Group ((RFG)) downgraded to Neutral from Buy by UBS. B/H/S: 0/1/1

The broker had a Buy rating on Retail Food ahead of the result, expecting guidance to be met. However, the stock has been rallying ahead of the release, bringing the share price in line with the broker's target. The broker has lifted its target to $4.75 from $4.70 but downgraded to Neutral.

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

Roc's result solidly beat the broker on lower operating and exploration costs. Focus is nevertheless on the takeover bid on the table from the Chinese, which killed off the proposed Horizon Oil merger. The question for shareholders is thus: will another competitive bid emerge? ROC confirmed it did get another approach, since withdrawn. The broker downgrades to Neutral as the chance of another bid seems low. Target rises to 69c from 65c.

SEEK ((SEK)) downgraded to Sell from Neutral by Citi. B/H/S: 2/2/4

FY14 results were in line. Citi notes the impressive profit growth but is cautious regarding the ramp up in capitalised expenses. The broker downgrades to Sell from Neutral on valuation, struggling to justify current multiples. Assets appear well positioned to deliver robust earnings growth but Citi considers this priced in. Target is lowered to $15.50 from $16.25.

Southern Cross Media ((SXL)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/4/2

Southern Cross' result was in line with guidance. Trends deteriorated in the second half, the broker notes, reflecting weaker radio/TV ratings, a weak ad market and higher spend on marketing to launch new metro radio programming. SXL remains focused on cutting costs and reducing gearing but the broker has dropped its target to $1.20 from $1.25 and downgraded to Neutral.

Stockland ((SGP)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 4/2/1

FY14 was in line. Stockland offers discipline (see Australand) and above sector growth and Credit Suisse positions at the top end of guidance, expecting the company will be a likely beneficiary from a stronger-for-longer recovery in the residential market. On a relative basis, against its peers, CS finds Stockland offers compelling value. Nevertheless, the rating has been pulled back to Neutral from Outperform. Target rises to $4.40 from $4.25. No dividend increase is anticipated.

Sonic Healthcare ((SHL)) downgraded to Hold from Buy by Deutsche Bank and to Neutral from Outperform by Macquarie. B/H/S: 3/5/0

Sonic's revenues were in line but earnings fell short of expectations given a weak result from pathology. It all comes back to co-payment fears, and management is remaining cautious. Pressure on SHL's funding is seemingly perpetual, the broker notes. The broker has cut its rating to Hold. Cash on the balance sheet suggests potential acquisitions but the broker is not factoring this in. FY14 earnings were below Macquarie's forecasts. Weak Australian pathology was partly offset by a recovery in the US. The stock is now trading in line with the broker's valuation and, while there is some buffer in the guidance, Macquarie believes risks from potential co-payments weigh on the outlook. Rating is downgraded to Neutral from Outperform.

Tatts Group ((TTS)) downgraded to Underperform from Neutral by Credit Suisse and to Neutral from Buy by UBS. B/H/S: 2/4/2

FY14 came in below expectations and Credit Suisse's estimates have been reduced by 6% for the years ahead. Tatts is investing heavily in new initiatives in Queensland and, assuming it will prove beneficial on top line, CS thinks this means operations will remain flat for a while. Price target loses 15c to $3.30. Rating downgraded to Underperform from Neutral. The stockbroker anticipated the pay-out of a special 26c dividend in FY16. UBS notes the devil in the detail was the Lotteries division, which saw a return to more normal jackpot pay-outs after FY13 conceded relatively few. The final dividend of 5.5c also missed the broker's' 7.0c forecast. TTS has announced a step-up in operating expense in order to re-launch the brand. While the broker believes this follows years of underinvestment, the cost will eat into earnings and UBS does not forecast a positive return on opex spend. Downgrade to Neutral.

Trade Me ((TME)) downgraded to Sell from Neutral by UBS. B/H/S: 1/2/3

Trade Me's result slightly beat the broker. TME invested heavily in growth in FY14 and intends to do the same in FY15, hence earnings growth will remain subdued in the interim, UBS notes. While the broker has faith in TME's strategy, it has become a longer term play with benefits not likely until FY17. In the meantime, the broker downgrades to Sell. Target falls to NZ$3.35 from NZ$3.45.

Transpacific Industries ((TPI)) downgraded to Hold from Add by CIMB Securities. B/H/S: 3/3/0

Transpacific's result only fell slightly short but a stronger than expected performance from NZ offset a weaker than expected performance domestically. NZ has now been sold, and competition in Aust has clearly been fierce, the broker suggests. Throw in landfill remediation costs and shorter landfill site life, and the broker has reduced its FY15 profit forecast by 29%. The broker likes the long-term story but has downgraded to Hold. Target falls to $1.00 from $1.25.

Wesfarmers ((WES)) downgraded to Hold from Add by CIMB Securities, to Underperform from Neutral by Credit Suisse and to Underperform from Neutral by Macquarie. B/H/S: 0/4/4

FY14 earnings were slightly ahead of CIMB's forecast. FY15 earnings forecasts are lowered and the broker suspects FY15 will be the low point for growth, reflecting the loss of insurance earnings and contraction in resources. The broker notes a decision to return $1.1bn to shareholders leaves the company with debt-funded acquisitive potential up to $3bn. CIMB downgrades to Hold from Add, given recent share price strength. FY14 results were in line with Credit Suisse's expectations. A $1 per share capital return was announced, subject to shareholder approval. As Wesfarmers appears fully valued, Credit Suisse has downgraded the stock to Underperform from Neutral. Wesfarmers produced a positive surprise for Macquarie, with all retail businesses beating slightly and resources beating significantly. Despite softening expectations for Coles, Macquarie envisages accelerating growth from FY16. The extra hand-outs were more than twice the broker expected, which suggests WES is a bit light on for meaningful M&A options. The medium term outlook remains strong but the stock is now trading well over the broker's valuation. Target rises to $44 from $42 but rating downgraded to Underperform.

Western Areas ((WSA)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 4/3/0

The stock provides high quality exposure to nickel but has performed strongly to date and JP Morgan believes a more attractive entry price may present in the second half of the year. The rating is downgraded to Neutral from Overweight as consensus forecasts have already priced in near-term appreciation of the nickel price. The stock is not priced aggressively but JP Morgan suspects, if the appreciation in the nickel price is delayed, this could then induce near-term earnings downgrades. Target is raised to $5.25 from $3.40.

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