Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features HARVEY NORMAN HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: HVN
The company is included in 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: Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley, Morgans 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 June 1 to Friday June 5, 2015
Total Upgrades: 4
Total Downgrades: 9
Net Ratings Breakdown: Buy 39.71%; Hold 43.00%; Sell 17.28%

Usually, when share prices fall, as they did the whole of last week, stockbrokers find more reasons to upgrade recommendations for individual stocks. But not last week.

For the week ending Friday, 5th June 2015 FNArena registered four upgrades and nine downgrades. Featuring prominently on the negative side were in vitro fertilisation service providers Virtus Health and Monash IVF after the former indicated industry growth is difficult rather than guaranteed. At least some investors had to recalibrate their views on this particular segment of an overall still popular healthcare sector.

Another stand-out negative performer was UGL, showing yet again the bad news story for resources services providers, in the absence of real infrastructure spending, continues unabated. Media companies joined the negative news cycle with both Southern Cross and Nine Entertainment issuing disappointing market updates.

As analysts update their forecasts and assumptions, BHP Billiton’s consensus price target remains under downward pressure. Fisher and Paykel Healthcare beat market expectations with its interim update, but the name only features in the table for positive revisions to profit forecasts. More good news flowed through the local energy sector which dominates the table for positive profit revisions.

Other companies forcing stockbroking analysts to make positive changes during the week include AGL Energy, APA Goup and Burson Group.

Upgrades

Generation Healthcare ((GHC)) upgraded to Add from Hold by Morgans. B/H/S: 1/1/0

The company has entered the aged care market, acquiring three freehold aged care properties for $45.8m. The acquisitions will be funded via a $52m placement and rights issue. FY15 guidance has been reaffirmed. Morgans believes the stock offers a niche investment in defensive health care assets with strong recurring income streams. Rating is upgraded to Add from Hold and the target to $1.78 from $1.55.

Harvey Norman ((HVN)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 4/2/2

Harvey Norman no longer reports quarterly sales data but feedback suggests a strong second half for the retailer, the broker notes, with the tailwinds of rising house prices, the May rate cut, improving consumer confidence and the budget’s small business incentives. Ireland is also rapidly improving. The broker believes the good news is largely reflected in the share price but that the risk is to the upside over the next 3-6 months. Target rises to $4.53 from $3.77 and rating upgraded to Neutral.

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

UBS considers REA Group is cheap relative to its online peers. The market attributes almost no value to the international assets and the leads-based opportunity. The stock has underperformed since the March quarter as slower revenue growth was affected by a number of factors the broker believes are transient. The long-term growth profile is intact, nevertheless, and UBS upgrades to Buy from Neutral on valuation grounds. Target is $47.

Sunland ((SDG)) upgraded to Add from Hold by Morgans. B/H/S: 1/0/0

The company has added to its South East Queensland portfolio with the settlement of Lakeview and the acquisition of a new site in St Lucia, Brisbane. Morgans rolls forward valuation with the target increasing to $1.96 from $1.92. Sales momentum is expected to be underpinned by a strengthening SE Queensland market and low interest rates and the broker upgrades to Add from Hold.

Downgrades

Alchemia ((ACL)) downgraded to Reduce from Hold by Morgans. B/H/S: 0/0/1

The profit share from Dr Reddy’s for fondaparinx was below forecasts in the March quarter. Weak prices and higher rebates are the cause. Moreover, Dr Reddy’s wants to renegotiate the profit share arrangements which adds uncertainty to the mix. Morgans downgrades to Reduce from Hold, pending more clarity on the issue. Target is lowered to 3c from 7c.

BHP Billiton ((BHP)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 3/4/1

Now the de-merger of South32 ((S32)) is complete the focus for BHP turns to oil and copper. Nevertheless, Deutsche Bank envisages difficulties with growth. Oil production will peak in FY15 because of a drop in US onshore volumes, conventional field decline and a lack of growth options. Moreover, for the first time in over a decade the company’s copper equivalent production growth is flat. More conventional oil is required, in Deutsche Bank’s view, but that means mergers or acquisitions. After adjusting for this outlook the broker downgrades to Hold from Buy on valuation and reduces the target to $33.40 from $36.20.

Monash IVF ((MVF)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/1/0

IVF stocks are not proving as defensive as other healthcare peers, the broker notes. This suggests a lower PE should be applied. In light of Virtus Health’s profit warning, the broker has downgraded Monash to Neutral. Earnings risk is provided by ongoing industry sluggishness, rising competition and difficulty in sustaining the pace of price increases, the broker warns. Target falls to $1.60 from $1.80.

Southern Cross Media ((SXL)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 2/3/3

JP Morgan envisages challenges ahead for Southern Cross Media with continued ratings issues in metro radio and regional TV as well as the company’s high gearing relative to other Australian media operations. The broker downgrades to Underweight from Neutral and lowers the target to 97c from $1.01. Advertising conditions are weak and there appears to be no quick fix. JP Morgan also notes a likely increase in the affiliation fee with Ten Network ((TEN)) from FY17 onwards.

Sydney Airport ((SYD)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 3/4/1

Credit Suisse does not expect an uplift in distribution guidance at the first half results because of sensitivity around international aeronautical fee negotiations. Revenue estimates are trimmed on lower passenger growth and weaker retail revenue expectations although this is partly offset by lower financing costs. The risk/reward is considered balanced and the stock fairly valued so Credit Suisse downgrades to Neutral from Outperform. Target is steady at $5.70.

UGL ((UGL)) downgraded to Underweight from Neutral by JP Morgan and to Underperform from Neutral by Macquarie. B/H/S: 0/1/6

UGL’s operational update guided to FY15 earnings of around $47m, lower than JP Morgan’s forecasts of $60.1m. The second half will be affected by further impairments and restructuring costs. A new analyst assumes coverage of the stock and the rating is downgraded to Underweight from Neutral. Target is raised to $2.15 from $1.92.Macquarie notes risks include failure to win LNG maintenance contracts, delays in the ramp up of infrastructure building and delivery of Ichthys.The good news is the power project at the Ichthys LNG site has stabilised over recent months and performance is in line with costs. However, the broker warns stability needs to be sustained and the project is only 30% complete. The broker has increased its target to $2.52 from $1.97 but notes UGL is trading at a 30% premium to domestic peers on FY16 forecasts, which is too steep given Ichthys risk. Downgrade to Underperform.

Virtus Health ((VRT)) downgraded to Neutral from Outperform by Macquarie and to Neutral from Buy by UBS. B/H/S: 2/2/0

Virtus has issued a profit warning for FY15, downgrading guidance by 10%. A recent rebound in NSW IVF volumes has proven a false dawn it seems, Macquarie notes, and market share is also being lost in Queensland and Victoria.The broker is concerned as to how quickly a positive outlook has become a negative one. Industry volumes are rebounding solidly yet Virtus is not achieving any leverage, suggesting it is failing to ward off the competition, the broker warns. While offering apparent value at current levels and despite appealing acquisition opportunities being available, the broker is worried the weak trend will continue into FY16. Downgrade to Neutral. Target falls to $7.00 from $8.80. UBS is reducing FY15 forecasts by 7.5% to reflect the guidance downgrade, with the company now expecting a low to mid single digit growth rate. Issues include the weak industry growth and increased competition as well as a weaker-than-expected performance from the Singapore start up. UBS downgrades to Neutral from Buy and reduces the target to $7.41 from $9.32.

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=79,83,91,74,128,74,170,102&h0=114,109,141,109,113,56,159,124&s0=44,61,17,51,52,46,21,42″ style=”border:1px solid #000000″ />

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