Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ

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 9 to Friday November 13, 2015
Total Upgrades: 10
Total Downgrades: 10
Net Ratings Breakdown: Buy 44.98%; Hold 43.13%; Sell 11.88%

In terms of rating changes, last week ended up as a draw -10/10 – for stockbrokers issuing upgrades and downgrades for individual stocks. Two banks received an upgrade each, being ANZ Bank and Westpac, while the negative side features some of the companies that issued shock announcements to the market, such as MMA Offshore, Seven Group and Seymour Whyte; hardly a surprise. DuluxGroup was the only one receiving both one upgrade and one downgrade for the week ending on Friday, 13th November 2015.

Companies that featured positively during the week include AusNet Services, Incitec Pivot, Webjet and APN Outdoor. They feature mostly on tables for positive changes to earnings estimates and revisions of price targets, though not necessarily in terms of positive rating changes as the prices are often quick to respond too.

In terms of reductions to price targets, FNArena only registered four during the week, but three of them are significant; MMA Offshore, Sims Metal and Santos, with Graincorp the fourth. Given specific announcements and developments at each company, none of this should come as a surprise.

The table for positive revisions of earnings estimates includes Eclipx, New Hope (acquisition), AP Eagers (acquisition) and Fortescue Metals as the iron ore miner continues to surprise with its cost cutting endeavours. On the flipside we find many of the usual suspects mentioned earlier, plus the likes of Syrah Resources, Crown, Breville and media companies Fairfax and Prime. With the exception of the top four of the table, most changes are relatively benign.

Maybe that's because there are no further updates to mining and energy sectors being released?

Upgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/3/1

The bank's share price has struggled and UBS believes, while concerns are justified, a lot of the negative news is now factored in.

The broker reviews the current multiples and finds the share price is already incorporating a significant increase in institutional impairments.

UBS also notes the bank has already exited $9bn in low-yielding trade finance exposures and flagged the exit of a further $9bn in institutional loans which do not cover cost of capital.

UBS upgrades to Buy from a Neutral rating. Target is steady at $29.00.

AUSNET SERVICES ((AST)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/5/0

Ahead of AusNet's interim result release on Nov 17, the broker has increased forecast earnings by 3% and upgraded to Outperform. The company has now overcome litigation, tax and capital raising issues (via DRP), the broker notes, and a draft regulatory framework provides revenue certainty through FY16-17.

The broker suggests the upcoming sale of Transgrid will be important. It has nothing to do with AusNet, but it will establish a value for regulated assets. AusNet's internal rate of return of 9.5-10.0% is materially higher than that of utility peers Duet ((DUE)) or Spark Infrastructure ((SKI)), the broker notes.

Target rises to $1.56 from $1.53.

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/5/1

The company has maintained FY16 guidance and provided greater clarity around cost savings and gearing targets at its AGM.

Deutsche Bank believes the company is responding to market feedback and this suggests a more communicative stance in the months ahead.

With a rise in the Fed funds rate around the corner the broker upgrades to Buy from Hold. Target is raised to $12.45 from $12.20.

DULUX GROUP LIMITED ((DLX)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/4/2

Citi analysts do not share the fears and worries about a turn in the Australian housing cycle that have risen to the surface at other brokerages these past few weeks. This effectively provides a platform to become more positive on DuluxGroup too, after what turned out a better-than-expected performance in FY15.

Target price rises to $6.88 from $6.31 on higher estimates. Rating goes up to Buy from Neutral. New product development, a healthy balance sheet, a dominating market share in Paints & Coatings,.. Citi analysts see plenty of reasons to be positive on the company's outlook.

Current premium valuation vis-a-vis the broader market is deserved and justified in the analysts' opinion.

See also DLX downgrade.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 3/4/1

Deutsche Bank is encouraged by the upgrades that have allowed a large drop in the strip ratios at the Chichester Hub, which has lifted recoveries.

The broker is more confident that C1 costs can fall below US$15/wmt in FY17. Rating is upgraded to Hold from Sell. Target is raised to $2.80 from $1.80.

GRAINCORP LIMITED ((GNC)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 1/2/2

The FY15 earnings were in line, having been previously announced, and highlight the challenges faced in grains, with Deutsche Bank noting malts and oils continue to increase their contribution as an offset.

The company's initiatives on restructuring and growth are expected to restore earnings stability and Deutsche Bank upgrades to Buy from Hold. Target is steady at $9.15.

INCITEC PIVOT LIMITED ((IPL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 5/2/1

Incitec's result came in in line with expectation, reflecting a solid performance in tough fertiliser and explosives markets, Credit Suisse suggests. The lower A$ provided a handy tailwind.

New disclosure on the derivative hedging of foreign currency debt allows the broker to adjust valuation, leading to a target price increase to $3.81 from $3.45. Otherwise the broker has trimmed forecasts on expectation markets will remain difficult for the time being. On Credit Suisse's ratings formula, the increased target leads to a rating upgrade to Neutral from Underperform.

INVOCARE LIMITED ((IVC)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/3/1

The share price has fallen 19% since August as the market absorbs the slower roll out and larger-than-expected start-up costs in the US.

UBS envisages large earnings upside if the company can successfully penetrate the funerals industry in California, where it is targeting a new niche market.

The broker upgrades to Neutral from Sell with the stock now trading back within its valuation band. Target is $11.40.

TIGER RESOURCES LIMITED ((TGS)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

Tiger posted record copper production at Kippoi in the Sep Q. Earlier this month the company announced a favourable refinancing deal which will afford the company considerably more options, Macquarie suggests. Previously the broker had assumed Tiger would remain capex-constrained and limited to stockpiles only.

Macquarie has now subsequently lifted longer term earnings forecasts substantially and raised its target to 13c from 7c. Upgrade to Outperform.

WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 6/2/0

Morgan Stanley believes the bank is managing a challenging operating environment better than its peers.

The rating is upgraded to Equal-weight from Underweight, given the clearer commitment to margin over market share, ongoing cost discipline and a stronger capital position.

The In-Line industry view is maintained. Target is raised to $30.00 from $28.20.

Downgrade

3P LEARNING LIMITED ((3PL)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/1/0

Deutsche Bank downgrades to Hold from Buy as the risk/reward is considered more balanced after the company's update. This implied lower-than-expected underlying revenue growth.

Deutsche Bank suspects this is being driven by slowing volumes in Australia and the UK because of increased competition. The broker wants to witness stronger growth before becoming more constructive. Target is lowered to $2.40 from $2.90.

DULUX GROUP LIMITED ((DLX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/4/2

Dulux' result marginally beat Macquarie. Cash flow conversion was solid and Dulux has grown market share in the key renovation paint market, the broker notes. The existing home segment continues to underpin the company's outlook.

Dulux also points to a lag in new building completions, offering some resilience ahead of any turn-down. The stock has now recovered from a scare following the FY15 result and has moved back towards Macquarie's valuation, prompting a pullback to Neutral. Target rises to $6.20 from $6.00.

See also DLX upgrade.

MMA OFFSHORE LIMITED ((MRM)) Downgrade to Reduce from Hold by Morgans .B/H/S: 2/3/1

The company has guided to earnings of $75-85m in FY16, significantly below the $221m in FY15. With visibility on demand very low, Morgans believes the risk remains to the downside.

Cost savings are not expected to be enough to offset the challenges, the broker maintains, with deteriorating conditions expected in core markets.

The broker downgrades to Reduce from Hold and the target price is cut to 19c from 42c.

NEWS CORPORATION ((NWS)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/3/0

First quarter earnings were weak, in Credit Suisse's view, as growth in digital real estate and Fox Sports was unable to offset weakness in news and books.

The broker lowers FY16 estimates by 3.7% and downgrades to Neutral from Outperform. Target is lowered to $23.40 from $24.00.

REA GROUP LIMITED ((REA)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/4/0

First quarter revenue growth accelerated with UBS noting it would have been even higher if not for the deferral of depth revenues booked at the end of September. Cost growth was contained.

The stock now trades in line with the broker's fundamental valuation and the rating is downgraded to Neutral from Buy. Target is raised to $48 from $47.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 5/2/0

The company has warned of $230m in write downs and that earnings in the first half will only break even. In the absence of significant scrap price appreciation and no clear short-term catalysts, JP Morgan downgrades to Neutral from Overweight.

The broker also believes the medium-term outlook is now under scrutiny, particularly as management made no mention of its $321m in earnings target for FY18.

The broker reduces the target to $8.65 from $11.90.

SANTOS LIMITED ((STO)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 6/2/0

The strategic review has concluded and Morgan Stanley analysts do not hide their sense of disappointment. One highly dilutive capital raising plus a sensible end to the progressive dividend policy with a whole lot less conviction in deep value in the company's assets is the end result, in Morgan Stanley's view.

The analysts have dropped their price target to $5.20 from $7.60 as, in their opinion, the chances of unexpected positive events are now likely to be a lot lower. Rating downgraded to Equal-Weight from Overweight. Industry-view In-Line. Estimates have received the chainsaw treatment.

SEVEN GROUP HOLDINGS LIMITED ((SVW)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/1

Macquarie has analysed quarterly earnings results from Caterpillar in the US and Komatsu in Japan ahead of Seven Group's AGM next week. Seven Group's WesTrac Caterpillar distribution business provides some 61% of Seven Group earnings, and some 65% of those earnings come from the mining industry.

The outlook for equipment manufacturers looks tough as mining continues to wind down, Macquarie notes. A further fall in earnings will bring into question the balance between debt and capital management. A 20% fall in earning in FY16 would imply a cash flow below the current dividend payout.

As the broker sees downside risk to earnings it has downgraded to Underperform. Target falls to $4.46 from $4.95.

SEYMOUR WHYTE LIMITED ((SWL)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

The company has identified two problem contracts which have affected profitability. Morgans is disappointed in the FY16 update, given this was supposed to be a better year. Profit is expected to be lower than FY15.

Morgans notes the strong order book and solid balance sheet but believes the stock has lost market confidence and moves back to Hold from Add. Target is reduced to $1.17 from $1.63.

Webjet Limited ((WEB)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/4/0

The AGM update signalled trading has improved in business to business activity. UBS notes the core business continues to benefit from the shift to online bookings and increased momentum in online international bookings.

The broker observes the share price has appreciated 27% since FY15 and a lot of the upside is now priced in. Rating is downgraded to Neutral from Buy. Target is raised to $5.07 from $4.75.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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