Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features ANSELL LIMITED, and other companies.
For more info SHARE ANALYSIS: ANN
The company is included in 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: CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley 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 February 9 to Friday February 13, 2015
Total Upgrades: 7
Total Downgrades: 38
Net Ratings Breakdown: Buy 43.09%; Hold 38.94%; Sell 17.96%

The early innings for the local reporting season have thus far offered more upside surprises than negative disappointments, which could be taken as a good omen for the rest of the month. Certainly investors have shown little hesitance in buying up share prices in February, in particular when the surprise is linked to dividends.

Quite the opposite is happening in broker ratings where downgrades continue to flood. For the week ending Friday, 13 February 2015, FNArena counted no less than 38 downgrades and only 7 upgrades in ratings for individual stocks. The good news is that most downgrades follow strong share price performances, with some notable exceptions. OZ Minerals and Suncorp come to mind.

The bias in price targets (and underlying valuations) remains to the upside with exception of Bradken whose disappointment this month shows there still is no limit to the downside for engineers and contractors relying on oil and gas companies and miners to open their wallets.

Resources companies continue to dominate the negative side for earnings forecasts, while the positive side offers a multi-coloured mix combining the likes of Senex Energy with BWP Trust, Qantas and Cochlear. Too early still to draw definitive conclusions, but investors should have a much better idea before the end of this week.

Upgrades

Ansell ((ANN)) upgraded to Outperform from Underperform by Macquarie. B/H/S: 3/2/3

Last time the company reported, Macquarie’s expectations had not been met and the stockbroker has been skeptical since. Interim results beat expectations, including the dividend and this seems to have turned sentiment around at Macquarie. Ansell’s current momentum is driven by its single use division, with the analysts pointing out organic growth for medical, sexual wellness and industrial divisions remains rather slow. The company looks well placed to achieve guidance, the analysts believe. Acquisitions might be back on the agenda too. Macquarie double-upgrades to Outperform from Underperform. Target jumps to $27 from $18.75.

See also ANN downgrade.

Boral ((BLD)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 4/4/0

Credit Suisse observes a number of emerging catalysts, such as significant cost reductions and the emerging NSW/QLD infrastructure cycle, which warrant a switch in favouring Boral as opposed to James Hardie ((JHX)). The broker upgrades to Outperform from Neutral. Investor concerns regarding the potential downside risk to earnings in FY15-16 appear resolved. The broker raises the target to $6.50 from $5.40.

Computershare ((CPU)) upgraded to Buy from Neutral by UBS. B/H/S: 3/4/1

First half results were broadly in line with UBS. Cost performance was solid while revenue was soft. The company expects FY15 to be modestly higher, in line with UBS expectations. The broker notes, despite FX valuation support, the stock has de-rated significantly since its FY14 result. The valuation is now considered relatively attractive. Hence, UBS upgrades to Buy from Neutral. Target is raised to $12.80 from $11.80.

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

First half results were below the broker’s forecast. While the decision to reduce guidance was a shock, Deutsche Bank believes the company is still one of the best positioned players in a robust industry. Deutsche Bank reduces estimates to reflect a period of more subdued growth but the rating is upgraded to Buy from Hold given the upside to target which is revised down to $90 from $92.

Nib Holdings ((NHF)) upgraded to Neutral from Sell by Citi. B/H/S: 1/5/0

Citi believes the contract announced with the Saudi Arabian Cultural Attache is no less than “transformational” for nib’s international students business, more than tripling the size of nib’s international students’ health insurance business. Estimates have been lifted, but from FY16 onwards. Rating goes to Neutral from Sell. Price target lifts to $3.30 from $3.05. The benefit comes through higher margins rather than through additional revenues, explain the analysts. They also point out at some point this month the Health Minister is to release details of approved average premium rate increases and this will remain the key driver behind the share price.

REA Group ((REA)) ugpraded to Add from Hold by Morgans. B/H/S: 4/3/1

Morgans is upgrading to Add from Hold to reflect the recent decline in the share price and a higher level of confidence in full year earnings forecasts. The broker considers the sell off after the results was an over-reaction that now leaves the price underestimating the potential for further upgrades. Target is raised to $55.32 from $54.73.

Virgin Australia ((VAH)) upgraded to Neutral from Sell by Citi. B/H/S: 1/4/2

Preliminary indications are that the performance/turnaround in Q2 has been much stronger than expected, comment analysts at Citi. And that’s before the full impact from lower oil prices will have been felt. Citi suggests management is speeding up its cost savings and this is seen as a clear positive. It pushes up the price target to $0.51 from $0.37 and the rating to Neutral from Sell. The company is scheduled to report interim results on Feb 19 and the analysts are awaiting further details. Estimates have been increased.

Downgrades

Alumina ((AWC)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 6/1/1

The shares have outperformed the big cap peers in the last 12 months and the broker is downgrading to Neutral from Outperform. Credit Suisse observes that while US dollar alumina prices have softened, currency weakness has been a mitigating factor. The broker expects dividends of US8c per share can be sustained at lower alumina pricing, underpinning a dividend yield of 5.0%. If alumina forecasts can be achieved in FY16, Credit Suisse estimates that the stock trades on a dividend yield of 8.5% which easily supports the target, revised up to $2.10 from $2.00.

Ansell ((ANN)) downgraded to Sell from Neutral by Citi, to Underperform from Neutral by Credit Suisse and to Hold from Buy by Deutsche Bank. B/H/S: 3/2/3

First half results were in line with Citi’s expectations. Growth was largely from acquisitions and it appears to the broker that initiatives taken in FY13 and FY14 to improve growth organically have not delivered the desired outcome. These patchy conditions appear set to continue and as a result Citi downgrades to Sell from Neutral. Credit Suisse notes the improved underlying performance and expects that over time, the launch of new products should deliver growth. Still, FX remains a headwind. While factoring in a slightly better performance on a constant currency basis, the broker downgrades earnings forecasts on updated currency assumptions. Rating is downgraded to Underperform from Neutral. Deutsche Bank notes sales were patchy and suspects this lacklustre organic growth will remain the norm. The broker downgrades to Hold from Buy, given the lack of upside to the price target – revised up to $26 from $25.

See also ANN upgrade.

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

AGL’s result was in line with the broker and the dividend was unchanged at 30c. FY15 guidance was reiterated and management highlighted intense retail competition and soft electricity demand, confirming the broker’s flat earnings outlook. AGL’s New Energy initiatives are a good move to stave off competition from the likes of batteries and solar and second tier industry players, the broker suggests, but won’t provide benefits until FY17. The gas market is supportive but priced in, the broker suggests, while the electricity market remains a drag. Downgrade to Neutral. Target rises to $15.38 from $15.20.

Beach Energy ((BPT)) downgraded to Sell from Neutral by UBS and to Neutral from Outperform by Credit Suisse. B/H/S: 2/3/2

Seven Group ((SVW)) has rapidly accumulated a 13.8% stake, reportedly at a premium to the prevailing share price. UBS notes this represents Seven’s fourth energy investment over the past 12 months. While Seven does not have the means to launch a takeover UBS does expect it to push for board representation. Despite Seven’s entry to the register UBS does not believe Beach deserves to trade at a takeover premium. The broker believes it will likely become an acquirer rather than be acquired. The broker downgrades to Sell from Neutral after the share price rally. Credit Suisse notes Cooper energy stocks have rallied strongly of late on the oil price bounce and Seven’s stake in Beach, which has seen Beach enjoy the strongest performance. The broker has lifted its Beach target to $1.20 from $1.10 which puts the stock at a full valuation, hence the downgrade to Neutral.

Bradken ((BKN)) downgraded to Equal-weight from Overweight by Morgan Stanley. B/H/S: 1/6/0

Bradken’s result missed the broker. Forecast earnings have been cut 20-30% and target to $2.50 from $5.00 as the broker moves to a bear case valuation, suggesting the first half leaves too many questions unanswered with regard revenue and the balance sheet. The broker does not believe a raising will be required but downgrades to Equal-weight until greater clarity emerges. Industry view: In Line.

Burson Group ((BAP)) downgraded to Neutral from Buy by UBS. B/H/S: 1/2/0

First half results were marginally below the broker’s forecasts. Takeover discussions have been suspended with two major WA chains. The company will enter the state by opening a small number of mega stores in Perth. UBS has reduced near-term earnings forecasts by 1-2% but lifted longer term forecasts marginally. Despite the positive outlook the broker downgrades to Neutral from Buy based on forecasts for a reduced shareholder return. Target is raised to $2.60 from $2.50.

BWP Trust ((BWP)) downgraded to Sell from Neutral by Citi. B/H/S: 0/0/4

Citi analysts saw a solid, in-line result with plenty to like, and growth should remain on offer, it’s just that the share price is way too rich for the analysts. Price target moves to $2.61 from $2.44. Rating downgraded to Sell from Neutral.

Cochlear ((COH)) downgraded to Sell from Hold by Deutsche Bank. B/H/S: 1/0/7

First half sales fell short of the broker’s expectations while revenue was in line, as stronger upgrade sales offset the weaker unit numbers. Deutsche Bank notes difficult market conditions are being faced and while a recovery in the second half seems likely sales growth has now been lacklustre for four years. Despite expecting a sustained and relatively dramatic recovery in unit growth, Deutsche Bank struggles to justify the share price. Rating is reduced to Sell from Hold and the target lowered to $71 from $72.

Collection House (((CLH)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 0/1/1

First half profit was ahead of the broker’s forecasts. JP Morgan notes the result appears to have been driven by a lower PDL amortisation charge. Despite the stronger-than-expected result, management maintained guidance. JP Morgan downgrades to Underweight from Neutral and continues to prefer Credit Corp ((CCP)) at current trading multiples. Target is raised to $1.90 from $1.82.

Commonwealth Bank ((CBA)) downgraded to Sell from Neutral by Citi and to Underweight from Neutral by JP Morgan. B/H/S: 1/4/3

Citi analysts saw a “typical” financial result from CBA: strong, forcing upgrades to future growth projections, but in the end, maintain the analysts, growth will still be slower in the future and this means the valuation is too high. The analysts stick to their price target of $80. Rating downgraded to Sell from Neutral. For investors looking to add exposure to banks, Citi analysts suggest looking at regional lenders in Australia. The bank’s first half result was above the broker’s forecasts. JP Morgan notes, compositionally, earnings were as expected. The broker is forecasting a further 100 basis points contraction over the next two years in returns on tangible equity and this is a key driver of valuation, which is 13% below the current share price. JP Morgan’s forecast decline in returns is based on the changing composition of earnings growth – from provisions and margin improvements to volume, in addition to known regulatory capital headwinds. Rating is downgraded to Underweight from Neutral.

Domino’s Pizza ((DMP)) downgraded to Underperform from Neutral by Credit Suisse and to Hold from Buy by Deutsche Bank. B/H/S: 2/3/2

First half results exceeded expectations. Credit Suisse gives management credit for executing its strategy perfectly. The broker has upgraded forecasts but, as the valuation still does not come close to the current share price, downgrades the recommendation to Underperform from Neutral. First half results were better than expected and Deutsche Bank observes the company continues to deliver exceptional operating results in key markets. Earnings forecasts are upgraded 5-7% but, with the stock trading on price/earnings of 43 times, the broker considers the positive outlook is reflected in the price. Rating is downgraded to Hold from Buy.

Genworth Mortgage ((GMA)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/2/0

Genworth’s result beat the broker. An 11.5c special div was declared and the broker notes the board will continue to focus on capital management. This will provide an ongoing catalyst. Operating conditions are also favourable but on the run-up in share price, the broker has decided to downgrade to Neutral. Target rises to $4.16 from $3.90

Goodman Group ((GMG)) downgraded to Sell from Neutral by Citi. B/H/S: 3/1/3

The broker cannot fault Goodman’s consensus-beating result but it can fault the market’s current valuation. The group is benefitting from the new “alternative use” trend, the broker notes, which sees old inner city industrial buildings converted to residential. But the market is on to it and the share price is too rich for the broker. Target rises to $5.93 from $5.65 but rating downgraded to Sell.

James Hardie ((JHX)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 3/4/1

Credit Suisse envisages limited upside from the prevailing share price with the stock reflecting fair value. The broker downgrades to Neutral from Outperform. Target is unchanged at $14.60. James Hardie continues to perform well amidst challenging macro conditions but the broker considers earnings risk is growing towards the end of 2015 and into 2016. US earnings margins are expected to grow at a slower rate.

Leighton Holdings ((LEI)) downgraded to Sell from Neutral by Citi. B/H/S: 0/2/4

Leighton’s fresh guidance implies lower revenues and no significant improvement in margins, the broker notes. There is a risk of falling into a funding hole between the completion of resource sector projects and the start of infrastructure projects. Add in the risk of impairments and while Leighton’s cash position is no longer a worry, earnings risk is to the downside, the broker believes. Downgrade to Sell, with better value on offer elsewhere in the sector. Target falls to $19.22 from $20.52.

Mincor Resources ((MCR)) downgrade to Neutral from Outperform by Macquarie. B/H/S: 1/1/0

Mincor’s result missed the broker on higher quotational pricing adjustments, albeit cash flow was broadly in line. Exploration is showing positive results but at current nickel prices the company does not generate cash. Thus if prices don’t rise exploration will have to be funded from the company’s $50m cash reserve, the broker notes. Downgrade to Neutral. Target falls to 72c from 75c.

Mirvac ((MGR)) downgraded to Neutral from Buy by Citi and to Neutral from Outperform by Credit Suisse. B/H/S: 2/4/1

Mirvac’s result beat consensus, earnings guidance was tightened to the top of the range and distribution guidance was maintained. The company is well positioned to take advantage of strength in residential markets, the broker suggests, but it’s all in the price. On share price outperformance, the broker downgrades to Neutral. CS was disappointed by the guidance which seemed a bit tepid given strong momentum in residential. Does this now imply guidance is cum upgrade later this year? The analysts note management continues to re-weight the business towards attractive markets and sub sectors. Above all, the valuation remains attractive in a sector that is quite expensive at the moment. Regardless, there doesn’t appear enough upside for an Outperform rating and thus a downgrade to Neutral has occurred.

Oil Search ((OSH)) downgraded to Sell from Neutral by Citi. B/H/S: 5/1/1

Citi’s desk of commodity specialists has taken a negative view on oil prices, short term, and a cautious view beyond the next few months, warning investors there is a real chance oil prices might be in for an extended “lower for longer” era. On this basis the risks are seen as to the downside. Oil Search has been downgraded to Sell from Neutral. Target drops to $7.15 from $7.26.

Orbis Gold ((OBS)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 0/1/0

Semafo has provided a best and final offer for Orbis of 71.3cps, up from 65cps. The board has unanimously recommended its acceptance. The broker sees no impediments and no competing bid likely, hence the broker lowers its target to 71c from 79c and downgrades to Neutral.

Origin Energy ((ORG)) downgraded to Neutral from Buy by Citi. B/H/S: 6/1/1

Citi’s desk of commodity specialists has taken a negative view on oil prices, short term, and a cautious view beyond the next few months, warning investors there is a real chance oil prices might be in for an extended “lower for longer” era. On this basis the risks are seen as to the downside. Origin Energy has thus been downgraded to Neutral from Buy. Target falls to $12.54 from $12.92. Estimates have been lowered.

OZ Minerals ((OZL)) downgraded to Hold from Buy by Deutsche Bank, to Neutral from Overweight by JP Morgan and to Neutral from Outperform by Macquarie. B/H/S: 4/4/0

2014 earnings were below forecasts and the dividend has been cancelled. OZ Minerals has closed the data room on Carrapateena. Deutsche Bank believes these moves increase the risk around the project and wonders if technical challenge will prove insurmountable. The uncertainty, exacerbated by the ongoing strategic review, leads the broker to downgrade to Hold from Buy. 2014 earnings were below JP Morgan’s forecasts. The broker considers the outlook has become increasingly uncertain and notes no guidance was set for 2015. Moreover, the company’s key development asset, Carrapateena, has been removed from the sale process and is no long being funded for exploration. As the shares are now trading near valuation JP Morgan downgrades to Neutral from Overweight. Oz Minerals’ earnings fell well short of Macquarie on higher than expected exploration write-downs. Cash flow was in line but no dividend was declared, and OZ has abandoned the search for a Carrapateena partner. The company will now go it alone, but the broker does not believe the project offers a sufficient return for shareholders. The stock otherwise looks cheap on the broker’s forecasts but fully valued on spot prices and while no dividend is a prudent move, the broker believes, the market won’t like it.

Regis Resources ((RRL)) downgraded to Neutral from Buy by UBS. B/H/S: 1/5/2

Regis’ quarterly report showed stronger production than the broker had forecast and significantly lower costs. Rosemont was the star performer. Cash flow was better than expected and debt has been reduced by slightly more than assumed. The broker has increased earnings forecasts, also accounting for the A$. Target rises to $2.10 from $1.70 but the broker downgrades to Neutral given a now full valuation.

Rio Tinto ((RIO)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 7/1/0

No one much cares about Rio’s result per se, which was in line with the broker’s forecast, it’s all about the fact management delivered on capital management as promised with an announced US$2bn share buyback, and furthermore increased cash flow allowed for a better than expected 6% jump in the progressive dividend. Now the genie’s out of the bottle, attention turns back to iron ore prices. The broker has lifted its target to $63 from $60 but downgraded to Neutral on a less than encouraging iron ore price outlook.

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

The broker upgraded Santos to Neutral from Underperform after its big oil-related price fall but now that the price has bounced, it’s back to Underperform. Balance sheet strains, a reserve downgrade at QCLNG and Santos continuing to guide to far lower sustainable capex numbers for GLNG than QCLNG suggest to the broker risk/reward is again “firmly” stacked to the downside. Target unchanged at $8.20.

Senex Energy ((SXY)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 4/1/1

The broker notes Cooper energy stocks have rallied strongly of late on the oil price bounce and Seven Group’s ((SVW)) stake in Beach, which has seen Beach enjoy the strongest performance. Senex has been dragged along, but the broker notes it does not offer synergies in consolidation nor the same oil price leverage as Beach. Balance sheet capacity is also limited and growth projections look optimistic given recent disappointing exploration results. The broker thus downgrades to Underperform on valuation. Target unchanged at 32c.

Suncorp ((SUN)) downgraded to Underweight from Neutral by JP Morgan and to Hold from Add by Morgans. B/H/S: 0/5/3

Whilst JP Morgan believes Suncorp has earnings drivers in the medium term there is a near-term concern about the insurance cycle, as well as overshooting on margins. Consensus estimates are also looking optimistic to the broker. JP Morgan downgrades to Underweight from Neutral. While personal lines profits have historically been stable market share losses in home insurance suggest to the broker that there could be some effort to normalise volumes which could affect margins. While the broker is supportive of management’s action, the current strength in the share price and expectations make for caution. First half results were a beat on expectations and the dividend 2c higher than expected. However, reduced guidance at the top line and a potential negative reinsurance recovery issue took the shine off the performance, in Morgans view. With the growth outlook challenged the broker downgrades to Hold from Add.

Telstra ((TLS)) downgraded to Hold from Add by Morgans. B/H/S: 0/6/2

First half results were above forecasts with operating performance strong across the board. That said, given the strong run up in the share price, Morgans downgrades to Hold from Add. The target is raised to $6.54 from $6.28.

Toll Holdings ((TOL)) downgraded to Sell from Neutral by Citi. B/H/S: 2/1/6

In a general preview on upcoming financial results for the transport sector, Citi analysts suggest most profit gains will have been made on the back of cost cutting exercises while the December period in general is seen as still a tough one for the industry overall. Toll Holdings is expected to retain guidance following asset sale benefits, but Citi analysts also expect the 1H15 results to highlight ongoing pressures to the core businesses. Rating has been downgraded to Sell from Neutral while price target at $5.40 and earnings estimates have been left unchanged.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup <img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=Citi,CreditSuisse,DeutscheBank,JPMorgan,Macquarie,MorganStanley,Morgans,UBS&b0=84,84,102,75,139,71,165,107&h0=102,104,128,107,106,54,129,115&s0=48,59,15,50,49,39,24,41″ style=”border:1px solid #000000″ />

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