Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

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 August 10 to Friday August 14, 2015
Total Upgrades: 29
Total Downgrades: 14
Net Ratings Breakdown: Buy 42.74%; Hold 41.78%; Sell 15.48%

The early domestic reporting season is revealing conflicting signals and trends with earnings estimates and share price performances in many cases disappointing, but stockbroking analysts are issuing many more recommendation upgrades while already rating more stocks a Buy or equivalent than Neutral or Sell. Clearly, they see value propositions opening up and multiplying while local indices are going through a rough patch.

For the week ending Friday, 14th August 2015, FNArena registered no less than 29 upgrades for individual stock recommendations and 14 downgrades. Ansell (3x upgrades) and Whitehaven Coal (3x upgrades) stand out on the positive side, while JB Hi-Fi (2x downgrades) and FlexiGroup (3x downgrades) stand out on the receiving side of the week’s ledger.

Both Ansell and FlexiGroup are also leading the pack when it comes to negative revisions to valuation/price target -no surprise here- while JB Hi-Fi and Echo Entertainment lead the table on the positive side with 10%+ increases each. When it comes to earnings forecasts, resources stocks continue to weigh on the market’s average with the likes of Whitehaven Coal, Karoon Gas and Orica receiving heavy-hitting downgrades while Ansell, National Australia Bank and Qube also received notable reductions to forecasts.

A surprise, maybe, but positive earnings estimates revisions on average have been higher than negative revisions with Sirtex leading the table (+55%), followed by Estia Health (+22.7%) and REA Group (+18%). Even Fairfax Media, on spot number ten for the week, still enjoyed a gain to profit estimates of nearly 11%.

It’s early days yet, but it would appear the underlying trend is a positive one, albeit supported by disappointing share price performances, of course.

Upgrade

ANSELL LIMITED ((ANN)) Upgrade to Neutral from Underweight by JP Morgan and Upgrade to Neutral from Sell by Citi and Upgrade to Buy from Neutral by UBS .B/H/S: 2/6/0

Ansell’s FY15 sort of matched expectations, but top line growth proved a disappointment. And then we saw guidance for FY16 that was well below expectations.

Ultimately, comment the analysts, guidance for FY16 highlights an underlying business that has not delivered an organic growth rebound despite R&D and high-growth acquisitions. Worriesome, is the underlying sentiment.

Post the share price fall, the share price is more in-line with the stockbroker’s revised target, which has triggered an upgrade to Neutral from Underweight. New target is $20.38 (was $22.05). Estimates have been cut.

FY15 results were disappointing and the wide range for FY16 guidance suggests to Citi a lack of confidence in the outlook. The broker reduces FY16 forecasts by 8.0% and FY17 by 16%.

After the sharp fall in the share price the broker finds the price/earnings ratio more reasonable and upgrades to Neutral from Sell. Target is reduced to $20.46 from $22.75.

FY15 results were well below the UBS’ forecasts, revealing a sharp deterioration in the second half. Adjusting for the challenging outlook UBS reduces FY16 earnings estimates by 11%.

The broker upgrades to Buy from Neutral, given the fall in the share price in response to the results. Target is lowered to $23.40 from $26.25.

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/2/1

Citi moves the stock to its most preferred among the major banks. The rating is upgraded to Buy from Neutral. Target is reduced to $34.00 from $34.50.

A June 2015 CET1 capital ratio of 9.3% and the impending sale of Esanda are expected to put the bank in a strong position relative to its peers.

The broker maintains its forecast 2016 pay-out ratio at 70% despite the new issue of shares, while expecting that slowing balance sheet growth in Asia remains an option to sustain dividend levels.

BEACH ENERGY LIMITED ((BPT)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/5/1

The strategic review maintains the prior direction and underwhelmed the broker. The company is promoting the sale and lease-back of Cooper Basin infrastructure assets to the JV.

Citi suspects M&A is needed to achieve the company’s growth targets. Given the recent underperformance of the share price the broker upgrades to Neutral/High Risk from Sell/High Risk.

Target is raised to 94c from 91c.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 7/1/0

Macquarie suspects BlueScope will need to act on the capacity challenges created by Chinese exports. This issue has raised the prospect of closing Port Kembla.

As the broker considers closure has an air of inevitability this could be a potential catalyst. Closure of Port Kembla could contribute 25% to FY17 earnings and lower volatility.

On this basis Macquarie upgrades to Outperform from Neutral and raises the target to $4.70 from $3.70.

CABCHARGE AUSTRALIA LIMITED ((CAB)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/1/2

UBS has upgraded Cabcharge to Buy from Neutral and lowered its target price to $4.70 from $5.00.

The broker expects upcoming FY15 results to show earnings slightly lower than the previous year, although Taxi Payments turnover is forecast to increase by 8%.

CAPITOL HEALTH LIMITED ((CAJ)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

FY15 results were marginally better than Morgans forecast. The broker notes the share price has fallen significantly in recent months and the stock is now back in buying territory.

Commentary is positive regarding FY16 and the broker takes the opportunity to upgrade to Add from Hold. Target is 94c.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/6/0

FY15 results were clean, in line and the capital raising was sized right, in the broker’s opinion. Cash earnings estimates are upgraded by 2.0%. Earnings per share estimates are reduced by 1.0% to account for the $5bn capital raising.

As a result Credit Suisse upgrades to Outperform from Neutral, reflecting a more positive view on the sector. The target is reduced to $88 from $91.

COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/5

FY15 results were considered solid, albeit below the broker’s expectations. FY16 guidance is up 13-20% on FY15.

On Citi’s forecasts of a US71c average exchange rate there is a tailwind to earnings. However, if using a US75c exchange rate in forecasts then the broker’s estimates would be at the low end of guidance.

The broker upgrades to Neutral from Sell and raises the target to $84.03 from $61.68.

See also COH downgrade.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/2/3

FY15 results were in line with estimates. Guidance of 5.5-6.0% growth into FY16 exceeds forecasts.

Credit Suisse upgrades to Neutral from Underperform but suggests the outlook is tempered by a lack of visibility on the distribution coverage. Target is raised to $7.90 from $7.55.

ECHO ENTERTAINMENT GROUP LIMITED ((EGP)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/0

FY15 results were better than expected with The Star premium mass segment surpassing the broker’s expectations in the second half.

Credit Suisse upgrades FY16-18 earnings forecasts by around 3.0%. Rating is upgraded to Neutral from Underperform and the target to $5.45 from $4.70.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 4/2/0

As the gold price weakens Morgan Stanley considers the ASX gold miners are better placed thanks to cost cutting and exchange rate considerations. The broker maintains a preference for low-level exposure to the sector.

Evolution Mining’s share price is factoring in the downside, the broker maintains. Hence, rating is upgraded to Equal-weight from Underweight.  In-Line sector view is maintained. Target is raised to $1.05 from $1.00.

FAIRFAX MEDIA LIMITED ((FXJ)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/3/0

FY15 results were slightly below the broker’s forecasts. Management has confirmed that FY16 has started strongly for Domain.

Deutsche Bank views the growth in Domain positively and Domain online is now 60% of valuation.

incorporating forecasts for the division, Deutsche Bank lifts the target  to $1.00 from 95c. The broker upgrades to Buy from Hold.

GBST HOLDINGS LIMITED ((GBT)) Upgrade to Add from Reduce by Morgans .B/H/S: 1/0/0

FY15 profit was in line with the broker. FY16 is considered a heavy investment year with the build up in costs associated with a larger global client base.

The recent sell-off presents an opportunity to buy into an emerging global leader at a good discount and Morgans upgrades to Add from Reduce. Target is raised to $6.10 from $5.08.

GPT METRO OFFICE FUND ((GMF)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/0

FY15 results were ahead of the broker’s expectations. FY16 forecasts are upgraded by 2.0%. Rating is upgraded to Buy from Neutral based on  the distribution yield of 7.4% and the three-year growth rate of 2.6%.

Target is elevated to $2.21 from $2.11. The broker’s main concern with small vehicles such as GPT Metro Office is the sensitivity to vacancies.

GOODMAN GROUP ((GMG)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/1

FY15 results were in line with consensus forecasts.

The broker has cut its FY16 forecast by 1.3% to reflect higher tax costs, but FY17 and FY18 see a slight increase on the back of expected growth.

Upgrade to Neutral from Sell and the price target rises to $6.30 from $5.93.

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 6/1/0

As the gold price weakens Morgan Stanley considers the ASX gold miners are better placed thanks to cost cutting and exchange rate considerations. The broker maintains a preference for low-level exposure to the sector.

While Independence Group has a diverse production base it offers low gold price leverage and the new corporate debt facility is expected to allay fears over any cash being redirected to Nova, in the broker’s view.

Morgan Stanley upgrades to Overweight from Equal-weight. Target is reduced to $4.40 from $5.00. In-Line industry view maintained.

INCITEC PIVOT LIMITED ((IPL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/1/2

The decline in the share price following Orica’s ((ORI)) profit warning and asset impairment is excessive, in Deutsche Bank’s view.

The factors cited by Orica appeared specific to that company and should be seen in the context of a new CEO re-basing expectations, Deutsche Bank maintains.

Hence, Incitec Pivot’s rating is upgraded to Buy from Hold. Target is $3.90.

MIRVAC GROUP ((MGR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/2

FY15 results were in line with the broker’s estimates. Credit Suisse expects Mirvac will again hit the top of its guidance range in FY16.

With the stock offering a prospective 14.7% total return on forecasts the broker upgrades to Outperform from Neutral. Target is raised to $2.00 from $1.97.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/2/4

As the gold price weakens Morgan Stanley considers the ASX gold miners are better placed thanks to cost cutting and exchange rate considerations. The broker maintains a preference for low-level exposure to the sector.

Newcrest’s price appears to be factoring in the downside and the broker moves to Equal-weight from Underweight. Industry view In-Line. Target is reduced to $11.40 from $12.30.

OZ MINERALS LIMITED ((OZL)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/3/0

The first half result was in line with expectations but the 6c interim dividend was a welcome surprise.

It seems management has clarified its position to target a dividend of 20% of net cash but UBS remains cautious about the predictability.

The broker upgrades to Buy from Neutral on recent share price weakness. Target is raised to $4.42 from $4.15.

PANORAMIC RESOURCES LIMITED ((PAN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

Panoramic has decided to curtail production at Lanfranchi given weak nickel prices, which is a sensible move in the broker’s view. A material reduction in cost base leaves the company in a stronger position to survive a period of weakness.

The sales of the My Henry project to Metals X ((MLX)) has eased liquidity concerns and the development of Lower Schmitz and Savannah North significantly improve the medium term outlook, the broker believes. Upgrade to Outperform. Target unchanged at 50c.

REA GROUP LIMITED ((REA)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 6/2/0

REA’s result was solid and in line with the broker’s expectations, although adjusted profit fell short due to amortisation of intangibles. REA is still enjoying healthy growth rates but the pace of growth is slowing, the broker notes. Margins are nevertheless holding up despite investment in products.

REA maintains a strong earnings outlook as price increases and depth products kick in, the broker suggests, but the question is whether the company can perform to the market’s lofty expectations. On a longer term basis, the broker sees the stock as more reasonably valued now, hence an upgrade to Neutral. Target falls to $43.50 from $45.00.

TEN NETWORK HOLDINGS LIMITED ((TEN)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 2/2/3

Ratings momentum continues and the company’s share has improved this year after several years of declines. Ten Network has also announced a series of related transaction which would mean Foxtel takes a 14.2% stake.

Credit Suisse considers this a potential catalyst, should the deal win regulatory approval, as it will leave the company well funded with a strong strategic shareholder.

Rating is upgraded to Outperform from Underperform, based on a view that the risk to market share is now skewed to the upside. Target is raised to 28c from 20c.

VIRGIN AUSTRALIA HOLDINGS LIMITED ((VAH)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/5/0

The FY15 results surprised positively, even though the headline was pre-announced. Morgan Stanley observes the company’s domestic offering is finally showing some signs of life.

Cash generation is likely to remain the priority. Morgan Stanley upgrades to Equal-weight from Underweight and the target to 46c from 40c. The broker’s sector view is Attractive.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Buy from Hold by Deutsche Bank and Upgrade to Buy from Neutral by UBS .B/H/S: 5/3/0

Whitehaven’s underlying earnings were in line with Macquarie. FY15 was a notable year of achievement and the broker is confident in the company’s operating credentials, but China is likely to continue to weigh on coal sentiment and pricing.

The broker sees Whitehaven as low risk and believes the company will continue to deliver on production and costs, but the share price will remain under pressure. It is enough, at least, to upgrade to Neutral. Target unchanged at $1.15.

FY15 results were in line with Deutsche Bank’s forecasts. 

The broker expects the ramp up of the Maules Creek mine to increase margins in FY16, with the help of a weaker A$.

Given the expected turn around in demand and price, the broker upgrades to Buy from Hold, and raises the price target to $1.60 from $1.45.

UBS forecasts a full year loss of $17.4m. The broker believes investor fatigue over the future of coal and negative news about loss-making US producers has weighed on the share price.

The FY15 result is expected to highlight a robust outlook for free cash flow generation and debt reduction. The broker lifts the rating to Buy from Neutral and maintains a $1.75 target.

Downgrade

ADELAIDE BRIGHTON LIMITED ((ABC)) Downgrade to Underweight from Neutral by JP Morgan .B/H/S: 0/5/3

JP Morgan envisages few prospects for meaningful earnings growth over the coming years, exacerbated by the falling Australian dollar.

While the company is considered one of the better managed in the sector, the stock is trading well ahead of valuation and the broker downgrades to Underweight from Neutral. Target is raised to $4.15 from $4.05.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/6/2

FY15 results were softer than expected and Credit Suisse downgrades forecasts by 2-3%. The broker is not enthused by the sizeable margin decline and reluctance to re-price investor mortgages.

The rating is downgraded to Neutral from Outperform, reflecting valuation and downside earnings risk in relation to revenues and upward pressures on costs. The target is lowered to $13.50 from $15.00.

CARSALES.COM LIMITED ((CAR)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 5/2/1

FY15 results were below the broker’s estimates. Deutsche Bank notes, outside the dealer category, all others were weaker.

While the slowdown is explained by some revenue being channelled to Stratton the outlook points to a relatively subdued environment, in the broker’s opinion.

Deutsche Bank downgrades to Hold from Buy and lowers the target to $10.40 from $11.30.

COCHLEAR LIMITED ((COH)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 1/2/5

The FY15 report fell well short of expectations, but then guidance for FY16 looks robust and the global market for cochlear implants has resumed growing, counter analysts at JP Morgan.

The analysts add Cochlear’s approach to the preservation of residual hearing is actually growing the overall market. It’s the valuation they have difficulties with. Target drops to $88.95 from $90.62.

Rating downgraded to Neutral from Overweight as the analysts argue the growth outlook has already been priced in. Estimates have been reduced.

See also COH upgrade.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/6/1

It was not Computershare’s result that sent the share price spiralling it was FY16 guidance, which came in at around 10% below consensus.

The broker had held an Outperform rating based on assumed leverage to interest rates, forex and corporate actions at an undemanding PE, but FY16 guidance puts off this cyclical view to FY17.

The reason to buy the stock has now dissipated, the broker suggests, hence a downgrade to Neutral. Organic growth remains challenged, earnings visibility is low, and acquisition opportunities are rare. Target falls to $11.30 from $14.70.

FLEXIGROUP LIMITED ((FXL)) Downgrade to Neutral from Buy by Citi and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/1

FY15 cash profit was below Citi’s forecasts. Guidance for FY16 is also below expectations and implies minimal organic growth. In the light of the guidance Citi downgrades to Neutral from Buy.

The broker notes the chairman, Chris Beare, is being replaced by founder Andrew Abercrombie. This will be the third chairman in 15 months.

FY16 and FY17 estimates are lowered by 8.0% and 11% respectively. Target is reduced to $3.36 from $4.66.

The pre-release of results and FY16 guidance implies growth below what Credit Suisse was expecting. The broker observes the stock appears cheap at face value and may benefit from further accretive acquisitions.

That said, given the extent of management changes – with the chairman resigning and the CEO only recently departed –  and the less favourable industry conditions the broker does not envisage a catalyst for a re-rating.

Rating is downgraded to Neutral from Outperform. Target is reduced to $3.30 from $4.30.

UBS is is concerned about the level of churn in the senior ranks, given the recent departure of the CEO.

FY15 results were pre-released and below expectations. Guidance for FY16 is also well below. UBS expects the current discount to peers is likely to remain in place until market confidence in medium-term growth is restored.

Rating is downgraded to Sell from Neutral. Target drops to $2.89 from $3.39.

INVESTA OFFICE FUND ((IOF)) Downgrade to Underweight from Neutral by JP Morgan .B/H/S: 0/2/3

Prospects for internalising management have diminished, JP Morgan observes, as the sale of its management platform along with a strategic stake will reduce the probability of a takeover bid.

Reports that Mirvac ((MGR)) will acquire the platform, if successful, would mean it becomes the manager.

JP Morgan believes, in addition to reduced upside risk from M&A, the primary disadvantage would be a conflict of interest with Mirvac’s various capital partners and on-balance sheet portfolio.

Rating is downgraded to Underweight from Neutral and the $3.47 target is maintained.

JB HI-FI LIMITED ((JBH)) Downgrade to Neutral from Buy by UBS and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/7/1

FY15 results were ahead of UBS’ estimates. JB Hi-Fi now plans to roll out small appliances across its entire store base.

UBS observes New Zealand results were soft, affected by competitive pressures. A further small buy-back was announced to neutralise the executive shares.

The broker upgrades forecasts by 7-8%. The company is winning share and benefitting from the strong housing backdrop.

The lift in the share price pulls the rating back to Neutral from Buy. Target is raised to $21.50 from $19.40.

JB Hi-Fi’s result beat the top end of the company’s guidance range, with the earnings surprise driven by margin stability. However while FY16 sales growth guidance of 5.4% is solid, it represents a deceleration from an exceptional 2H15, Macquarie notes.

2H16 will be a lot more challenging given it will compare to a 2H15 which included the iPhone6 launch, the federal budget’s small business incentives and a May RBA rate cut, the broker points out. Thus while JB remains the broker’s preferred discretionary retailer, it’s time to lock in some profits.

Target rises to $21.26 from $20.82 but rating pulled back to Neutral.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Sell from Neutral by UBS .B/H/S: 3/2/1

UBS updates its model to include the Waihi acquisition and the proposed Romarco deal.

The production profile improves but the Romarco deal is considered dilutive and, given the significant premium being offered, suggests little upside for shareholders.

UBS downgrades to Sell from Neutral based on valuation.Target falls to $2.20 from $3.08.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 5/2/1

As the gold price weakens Morgan Stanley considers the ASX gold miners are better placed thanks to cost cutting and exchange rate considerations. The broker maintains a preference for low-level exposure to the sector.

As the stock is up 14% over the past four weeks and now implies 5.0% downside to the revised target – to $1.20 from $1.30 -Morgan Stanley moves to Underweight from Equal-weight. In-line sector view retained.

STW COMMUNICATIONS GROUP LIMITED ((SGN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/4/0

STW’s weak FY15 results were disappointing to the broker.

Credit Suisse believes the stock is cheap, but any catalyst for growth seems a long way off.

The broker has downgraded the stock to Neutral from Outperform, and the price target is reduced to 62c from 82c.

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=81,90,90,71,130,77,161,103&h0=108,106,132,102,105,56,136,114&s0=35,43,18,46,46,44,18,41″ style=”border:1px solid #000000″ />

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