Australia | Nov 09 2015
This story features ALUMINA LIMITED, and other companies. For more info SHARE ANALYSIS: AWC
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 November 2 to Friday November 6, 2015
Total Upgrades: 4
Total Downgrades: 8
Net Ratings Breakdown: Buy 44.95%; Hold 42.97%; Sell 12.08%
The local share market continues to battle downward pressure with Australia's major equities indices still in negative territory for the calendar year to date (ex-div), but stockbrokers continue downgrading more stocks than issuing upgrades. Clearly, this should be the other way around?
For the week ending Friday, 6th November 2015, FNArena registered four upgrades for individual stock ratings against eight downgrades.
What gives?
One conclusion to draw is that not all stocks are in the same boat. There's still room for a positive surprise and two out of these four upgrades are directed towards smaller cap industrials & financials companies issuing a positive surprise during the week; APN Outdoors and Credit Corp.
On the flipside we find downgrades being triggered either by negative surprise (Graincorp, GWA), but mostly by share prices having risen too far, at least in the eyes of analysts covering stocks such as Amaysim, oOhMedia and Xero.
Most stocks that delivered a market update can be found in the tables for changes to price targets and earnings estimates. Hence positive changes to price targets were registered for APN Outdoor, BT Investment, Mineral Resources and Macquarie Group. On the negative side we find ANZ Bank, GWA Holdings, JB Hi-Fi and Telstra.
Remarkable is that most market updates by major banks have triggered a net negative response from analysts, with exception of Westpac which this week mastered a position on the table for positive revisions to earnings estimates. That same table includes the likes of DUET, Aconex, CSR and NIB Holdings.
Stocks that saw analysts pare back profit forecasts include Woolworths (yet again), Ten Network, Graincorp, Origin Energy, Xero and GWA Holdings.
In between all of the above sit a dozen energy and mining related stocks of which Alumina Ltd, Mineral Resources and AWE Ltd are the most prominent.
Upgrade
APN OUTDOOR GROUP LIMITED ((APO)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0
Morgans has upgraded its forecasts for the second time in a week, to reflect the new guidance for 2015 and also the structural trends that are favouring the outdoor advertising industry.
These trends are showing no signs of abating and, after upgrades to forecasts and valuation, Morgans reverts back to an Add rating from Hold. Target is raised to $5.41 from $4.46.
ALUMINA LIMITED ((AWC)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/3/0
Citi has upgraded Alumina Ltd to Neutral from Sell while reducing the price target to $1.15 from $1.20 as the analysts incorporate the decision made by JV partner Alcoa to curtail alumina capacity further at Point Comfort.
The analysts hold a positive view on alumina prices post 2018 so this decision is poised to be reversed in the years ahead, if Citi forecasts prove correct. The decision to upgrade was made on the basis of "valuation" as the share price has been weak recently.
CREDIT CORP GROUP LIMITED ((CCP)) Upgrade to Overweight from Neutral by JP Morgan .B/H/S: 1/0/0
The company has upgraded FY16 guidance by 5.0% at the AGM. JP Morgan recognises that the company faces a number of potential earnings headwinds in coming years, primarily its exit from short-term consumer lending and heightened competition.
The broker, nonetheless, notes the significant recent decline in the company's share price, and believes the risk/reward is now skewed to the upside.
Rating is upgraded to Overweight from Neutral rating and the $11.27 target is retained.
PANORAMIC RESOURCES LIMITED ((PAN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/1
The September quarter was a tough one for Panoramic, Macquarie notes, given redundancy costs, provisional pricing adjustments and unfavourable shipment timing. But with the high-cost Lanfranchi mine now closed, the company should run close to cash flow break-even.
The longer term outlook is nevertheless excellent, Macquarie believes, as production increases from the Savannah North and Lower Schmitz projects. Target rises to 50c from 30c. Upgrade to Outperform.
Downgrade
AMAYSIM AUSTRALIA LIMITED ((AYS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/0
On the back of its renewed wholesale contract with Optus, amaysim has offered new phone plans which improve the company's competitive offering, Macquarie notes, but will place some pressure on revenues per user.
Leveraging off Optus is a key strategic plank for amaysim, the broker suggests, but the environment is becoming more competitive. Given recent stock price strength Macquarie pulls back to Neutral. Target unchanged at $2.45.
BURU ENERGY LIMITED ((BRU)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/1/0
Macquarie observes many mid cap energy companies have enjoyed a share price rebound from August lows and do not offer compelling valuation.
The broker downgrades its recommendation to Neutral from Outperform and the target to 40c.
GRAINCORP LIMITED ((GNC)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 0/3/2
The pre-release of the FY15 result is considered a negative by Deutsche Bank, as it is at the lower end of guidance and misses the broker's forecasts. The weak result is primarily driven by an earnings loss in marketing.
Deutsche Bank's FY16 forecasts are reduced by 18%. Rating is downgraded to Hold from Buy. Target is lowered to $9.15 from $9.50.
GWA GROUP LIMITED ((GWA)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/3/2
GWA saw 3% sales growth in the September quarter but the company has warned the lower currency will drag on earnings in FY16. While the outlook for housing completions remains strong, the risk is whether GWA can pass on the currency impact to customers through higher prices, Macquarie notes.
Asset sales mean a second capital return is possible and GWA will recommence dividends in FY16, but on earnings risk the broker downgrades to Underperform. Target falls to $2.42 from $2.45.
OCEANAGOLD CORPORATION ((OGC)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/0
Citi analysts point at the strong share price appreciation to justify the downgrade in rating to Neutral from Buy.
The analysts note there is upside in the company's exploration and resource drilling programs at its new projects. Target improved to $2.80 from $2.46.
OOH!MEDIA LIMITED ((OML)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0
oOh!media has acquired inLink, which boasts 2500 digital screens across key capital cities.
Upside for oOh will need to be driven by earnings upgrades and further bolt-ons over time, Macquarie suggests. In the meantime, growth requires capital investment and margins will eventually contract as contracts renew. The broker sees Out of Home as a compelling advertising story, but feels oOh is well-priced at this stage.
Downgrade to Neutral. Target rises to $3.80 from $2.95.
TATTS GROUP LIMITED ((TTS)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/3/1
Credit Suisse downgrades to Underperform from Neutral, given the share price appreciation recently. The broker suspects turnover may be growing faster than revenue, largely because Tatts is increasingly promoting with free bets.
The broker believes it is too early to judge whether UBET has traction with customers. Target is steady at $3.40.
XERO LIMITED ((XRO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/1
Xero's first half result was in line with Macquarie's forecast. Customer numbers were higher than expected and revenues were aided by a weaker NZ$. But reluctantly, the broker must downgrade to Underperform.
Macquarie is a big fan of Xero's growth prospects and quality management, but the share price has just run too far, too fast and needs to "take a breather". NZ$16.50 target retained.
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Positive Change Covered by > 2 Brokers
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Negative Change Covered by > 2 Brokers
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Technical limitations
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CHARTS
For more info SHARE ANALYSIS: AWC - ALUMINA LIMITED
For more info SHARE ANALYSIS: BRU - BURU ENERGY LIMITED
For more info SHARE ANALYSIS: CCP - CREDIT CORP GROUP LIMITED
For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED
For more info SHARE ANALYSIS: GWA - GWA GROUP LIMITED
For more info SHARE ANALYSIS: OML - OOH!MEDIA LIMITED
For more info SHARE ANALYSIS: PAN - PANORAMIC RESOURCES LIMITED
For more info SHARE ANALYSIS: XRO - XERO LIMITED