Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features BEACH ENERGY LIMITED, and other companies.
For more info SHARE ANALYSIS: BPT
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 September 14 to Friday September 18, 2015
Total Upgrades: 7
Total Downgrades: 3
Net Ratings Breakdown: Buy 46.21%; Hold 41.21%; Sell 12.58%

Overall activity from stockbroking analysts has quietened down a lot in September as the seasonall lull in between a busy reporting season and the upcoming AGM season is often taken as an opportunity to chill out and maybe even enjoy a short holiday.

For the week ending Friday, 18th September 2015, FNArena registered seven ratings upgrades and only three downgrades. With three upgrades and one downgrade for energy stocks, the overall picture continues to be dominated by analysts further adjusting to a lower for longer environment for crude oil and energy prices in general. The same dominance is prevalent for changes to valuations and price targets and to profit forecasts.

Among the exceptions, we find positive movements for TPG telecom in anticipation of yet another solid financial result, and as analysts start incorporating contribution and synergies from the acquired iiNet operations. Upmarket retailer OrotonGroup attracted one upgrade post its financial reporting, while goldminer Regis Resources was downgraded post its set of financial results.

Karoon Gas tops the list for positive adjustments to profit forecasts but this is likely to reverse this week as the company announced some serious downgrades to its Brazilian projects.

UBS has now joined Macquarie, Morgan Stanley and Morgans as the fourth stockbroker in the FNArena universum carrying more Buy ratings than Neutral views on the stocks under coverage. Looking at the numbers of B/H/S ratings for the other four, it's probably a fair assumption four is the maximum achievable in the medium term. Four out of eight is still 50%.

Needless to say, these are not the kind of observations that usually belong to a healthy bull market for equities. But you knew that already.

Upgrade

BEACH ENERGY LIMITED ((BPT)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/3/1

Macquarie has cut its Aussie forecasts by 8-9%% to US63c in 2016, US67c in 2017 and US75c long term. Domestic O&G producers reporting in Aussie see a net 37% earnings forecast upgrade as a result, albeit for some this is offset by USD costs. The broker's sector multiple has risen as a result.

As has the broker's rating for Beach, to Outperform. But the broker has dropped its target to 75c from 95c. The broker's report did not include earnings forecast changes.

DRILLSEARCH ENERGY LIMITED ((DLS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/0

Macquarie has cut its Aussie forecasts by 8-9%% to US63c in 2016, US67c in 2017 and US75c long term. Domestic O&G producers reporting in Aussie see a net 37% earnings forecast upgrade as a result, albeit for some this is offset by USD costs. The broker's sector multiple has risen as a result.

As has the broker's rating for Drillsearch, to Outperform. Target nevertheless falls to 90c from $1.10. The broker's report did not include earnings forecast changes.

OROTONGROUP LIMITED ((ORL)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/0

FY15 was a very painful exercise for Oroton, observes Citi. FY16 should be a significantly better exercise with earnings before interest and taxes (ebit) expected to nearly treble (from arguably a low base).

Citi has set a new target price of $2.55 (was $2.10). Rating has been upgraded to Neutral from Sell. The company has its currency exposures hedged and Citi believes the pressure on margin experienced in the year past should not repeat itself this year.

The analysts also note to become more positive on the stock, they'd need clarity about how OrotonGroup can make its Asian operations and Gap profitable.

RIO TINTO LIMITED ((RIO)) Upgrade to Buy from Neutral by UBS .B/H/S: 6/2/0

UBS lines up the outlook for the major miners. With iron ore appearing the better commodity into 2016 through supply side discipline, as opposed to oil, UBS upgrades Rio Tinto to Buy from Neutral.

Looking at production guidance for 2015 the broker observes the majority of commodities are expected to reveal negative or near-flat production growth.

Only Pilbara iron ore is expected to add meaningful production growth this year. The broker retains a target of $61.

TRANSURBAN GROUP ((TCL)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/2/0

Transurban has not escaped the broad market sell-off and Citi's expected total return has risen to 15.7% on the weaker share price. This triggers an upgrade to Buy.

Transurban is exposed to defensive assets in a tough macro environment and offers an attractive yield and distribution growth, Citi notes, along with a pipeline of growth options. Target unchanged at $10.56.

TPG TELECOM LIMITED ((TPM)) Upgrade to Buy from Sell by Citi .B/H/S: 3/1/2

The sector is readying for the grand broadband battle in coming years and Citi analysts have come to the conclusion: TPG Telecom is ready for it. Helped by the acquisition of iiNet the broker is anticipating EPS CAGR of +30% to FY18.

At face value, migrating to NBN Co, away from Telstra copper, means higher access costs and lower gross margins, but Citi believes TPG management can offset this. Estimates have received a boost. Rating has been upgraded to Buy from Sell (double whammy) and the price target jumps to $11.30 from $8.50.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/5/2

Macquarie has cut its Aussie forecasts by 8-9%% to US63c in 2016, US67c in 2017 and US75c long term. Domestic O&G producers reporting in Aussie see a net 37% earnings forecast upgrade as a result, albeit for some this is offset by USD costs. The broker's sector multiple has risen as a result.

As has the broker's rating for Woodside, to Neutral. But Woodside is not a major beneficiary of currency movements, and the broker has dropped its target to $32 from $35. The broker's report did not include earnings forecast changes.

Downgrade

BILLABONG INTERNATIONAL LIMITED ((BBG)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 0/3/0

JP Morgan suspects the trading environment in the company's biggest market, the US, has worsened, based on the results from rivals. Still, there is longer-term potential for a turnaround, the broker believes, given the company's sound strategies.

Despite the ongoing turnaround story, the risk/reward proposition is not deemed compelling enough to become more constructive on the stock at this time, and a decision has been made to pull back the rating to Neutral. Target is reduced to 70c from 75c.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/3/0

Much has been made in energy circles of Santos' ((STO)) high gearing levels, yet Origin's credit rating is only one notch below Santos and gearing is materially higher, Citi notes. And unlike Santos, Origin has no plans in place to fix its balance sheet.

Origin's energy markets growth outlook is flat. On a lower growth outlook and higher risk profile than peers, Citi downgrades to Neutral and cuts its target to $7.54 from $9.69.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/4/1

FY15 profit was head of Credit Suisse forecasts, with higher gold sales reported. The outcome is considered reasonable, given the recurrence of operational issues which limited production.

FY16 guidance is unchanged. The broker downgrades to Neutral from Outperform given recent share price gains. Target is raised to $1.55 from $1.50.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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