Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features EVOLUTION MINING LIMITED, and other companies.
For more info SHARE ANALYSIS: EVN
The company is included in ASX50, ASX100, 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, Macquarie, Morgan Stanley, Morgans, Ord Minnett 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 March 14 to Friday March 18, 2016
Total Upgrades: 6
Total Downgrades: 16
Net Ratings Breakdown: Buy 43.49%; Hold 44.45%; Sell 12.05%

Far more downgrades than upgrades. Such was the verdict at the close for the week ending Friday, March 18, 2016. FNArena recorded 16 downgrades in ratings for individual stocks against only six upgrades. The fact that gold stocks are prominently represented on both sides illustrates the complexity of diverging movements in today's market.

Traditionally, the post February reporting season period is a quiet one, but not this year. At least not the three weeks into March thus far. Part of the explanation comes from miners and energy stocks which take up the bulk of stockbroker ratings downgrades for the week. As indicated, gold producers represent 50% of all upgrades, which makes Estia Health and Medibank Private true stand-outs. The Reject Shop received an upgrade to Neutral during the week.

Among the downgrades, Macquarie made a sector valuation call during the week, which saw Regis Healthcare and Japara downgraded, while Dexus Property and high flyer Treasury Wines each added one extra non-resources related downgrade. Myer's financial update attracted two downgrades post event.

Myer does sit second from the top in the table for positive revisions to price target (+8%), only beaten by fellow-retailer The Reject Shop (+20%). Aconex's latest acquisition was good for an extra 7%.  Negative revisions were rather small allowing National Australia Bank spin-off CYBG to rise above the field with a -4% adjustment.

Earnings revisions are largely resources-related with BHP Billiton topping the positive side and Santos leader among the negatives. Both Myer and The Reject Shop forced analysts to lift forecasts.

Upgrade

BEADELL RESOURCES LIMITED ((BDR)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/2/0

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow. Increased gold price forecasts drive modest earnings upgrades.

Beadell Resources is upgraded to Neutral from Underperform. Target is raised to 31c from 20c.

ESTIA HEALTH LIMITED ((EHE)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/0

Macquarie has reviewed the aged care industry and compared listed providers across key operating and investment metrics. Estia Health disappointed the broker in the first half because of a ramp up in costs.

Still, it offers the most attractive valuation after recent weakness and the rating is upgraded to Outperform from Neutral. Target is raised to $7.00 from $6.50.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/1

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow.

Evolution Mining is upgraded to Outperform from Neutral as it generates strong cash despite receiving a lower multiple given a shorter forecast mine life. Macquarie expects the significant debt on the balance sheet will be aggressively paid down in the near term.

Target is raised to $2.00 from $1.70.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/1

The AMA has released its 2016 private health insurance report. Macquarie believes health insurers are across the issues outlined in the report.

The broker believes Medibank Private's FY16 earnings risk is skewed to the upside and claims growth risk is on the downside. Regulatory risk is moderating as the 2016 budget approaches and the federal election looms.

Macquarie upgrades to Outperform from Neutral. Target is steady at $2.88.

ST BARBARA LIMITED ((SBM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow.

St Barbara's rating is upgraded to Outperform from Neutral. The company has the strongest forecast cash flow in the broker's coverage and the highest multiple given Gwalia's seven-year reserve life.

While there is significant debt on he balance sheet Macquarie expects this to be paid down quickly. Target rises to $3.00 from $1.85.

THE REJECT SHOP LIMITED ((TRS)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/1/0

Morgan Stanley analysts admit the operational turnaround has occurred much quicker than expected. They have now gained sufficient confidence in that positive momentum is sustainable.

They do, however, have a problem with the share price, hence why the upgrade stops at Equal-Weight. Target price jumps to $13.80 from $6.40. The revision has put a rocket under the stockbroker's forward looking estimates.

Downgrade

BHP BILLITON LIMITED ((BHP)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 4/2/2

Following an updated commodities price deck and amid recent sentiment-driven share price movements Macquarie adjusts its outlook.

Aside from marking to market, the most significant changes are an upgrade to near-term lead forecasts, upgrade to medium-term semi-soft coking coal and a cut to long-term copper forecasts. The broker does not believe the modest improvement in fundamentals supports the price movements.

Prices have moved well ahead of underlying demand assumptions. Hence, the broker downgrades BHP to Underperform from Neutral. The $15.50 target is maintained.

DORAY MINERALS LIMITED ((DRM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow. Increased gold prices drive modest earnings upgrades.

A number of stocks are still trading above the broker's increased targets. Consequently Doray Minerals is downgraded to Underperform from Neutral.

Target rises to 90c from 60c.

DEXUS PROPERTY GROUP ((DXS)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/2/2

The stock has performed strongly over the past month despite delivering the worst relative performance at the results, in Credit Suisse's  view.

The broker attributes the recent rally to increased probability on Dexus walking away from the Investa Office ((IOF)) bid. This would be a positive outcome for Dexus unit holders.

Credit Suisse observes emerging details suggest there is minimal earnings upside for Dexus in terms of Investa's existing management and fee arrangements.

The broker downgrades to Underperform from Neutral. Target is $7.67.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/2

Morgan Stanley has updated its views on iron ore, from London (UK), and reportedly decided to downgrade Fortescue Metals to Underweight from Equal-Weight as a result.

The general revision has led to a 15% cut in the projected average price for iron ore in 2016 & 2017 to US$38/tonne which should then be followed by a rally in 2018 (+40% yoy to US$51/t).

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Following an updated commodities price deck and amid recent sentiment-driven share price movements Macquarie adjusts its outlook.

Aside from marking to market, the most significant changes are an upgrade to near-term lead forecasts, upgrade to medium-term semi-soft coking coal and a cut to long-term copper forecasts. The broker does not believe the modest improvement in fundamentals supports the price movements.

Prices have moved well ahead of underlying demand assumptions. Independence Group is downgraded to Neutral from Outperform. Target rises to $3.40 from $3.30.

JAPARA HEALTHCARE LIMITED ((JHC)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/0

Macquarie has reviewed the aged care industry and compared listed providers across key operating and investment metrics.

Japara is considered to have the best balance sheet and the biggest development agenda relative to its size. The broker believes there is potential for operating uplift if the company can move its margins towards its peers.

The stock price has had a strong run and Macquarie downgrades to Neutral from Outperform. Target is lowered to $3.30 from $3.50.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/4/1

First half results showed some signs of progress, Morgan Stanley observes, but the improvement is more linked to higher clearance activity, lower Australian dollar and strong Christmas for all retailers.

The broker would prefer to see better foot traffic or conversion and suspects this has not changed. Morgan Stanley downgrades to Equal-weight from Overweight as the share price now looks reasonable. In-Line industry view retained. Target is raised to $1.30 from $1.25.

Deutsche Bank found signs of progress in the first half results and while profit was stronger than expected sales were weaker, because of a drag on like-for-like growth. Gross margin contracted more than expected.

While the stores are benefitting from better trading conditions the broker believes there is still much work to do, and after strong outperformance in the share price the rating is reduced to Hold from Buy. Target is raised to $1.25 from $1.20.

NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/1/2

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow. Increased gold prices drive modest earnings upgrades.

A number of stocks are still trading above the broker's increased targets. Consequently Northern Star is downgraded to Underperform from Neutral. Target is unchanged at $3.10.

OIL SEARCH LIMITED ((OSH)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/2/2

With global supply projected to grow by more than 100mtpa over the next 5 years from projects in construction, Citi's modeling is forecasting significant over-supply by 2019. Given an inability to store LNG, the market will have to rebalance, argue the analysts. They've pared back price estimates.

All this leads to the conclusion that LNG growth outlook for stocks under Citi coverage remains "sobering". Oil Search is the prime victim from Citi's latest sector assessment, receiving a downgrade to Sell from Neutral.

OZ MINERALS LIMITED ((OZL)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/5/1

Following an updated commodities price deck and amid recent sentiment-driven share price movements Macquarie adjusts its outlook.

Aside from marking to market, the most significant changes are an upgrade to near-term lead forecasts, upgrade to medium-term semi-soft coking coal and a cut to long-term copper forecasts. The broker does not believe the modest improvement in fundamentals supports the price movements.

Prices have moved well ahead of underlying demand assumptions. The broker downgrades to Underperform from Neutral. Target is lowered to $4.50 from $4.80.

REGIS HEALTHCARE LIMITED ((REG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

Macquarie has reviewed the aged care industry and compared listed providers across key operating and investment metrics

Regis Healthcare retains the best quality portfolio but, post the Masonic acquisition, Macquarie observes its balance sheet is now 1.9 times geared.

With the stock trading close to 30 times FY16 estimates the broker downgrades to Neutral from Outperform ahead of the upcoming federal budget. Target is reduced to $6.00 from $6.30.

RIO TINTO LIMITED ((RIO)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/4/0

Morgan Stanley has updated its views on iron ore, from London (UK), and reportedly decided to downgrade Rio Tinto to Equal-Weight from Overweight as a result.

The general revision has led to a 15% cut in the projected average price for iron ore in 2016 & 2017 to US$38/tonne which should then be followed by a rally in 2018 (+40% yoy to US$51/t).

SOUTH32 LIMITED ((S32)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 4/2/2

Following an updated commodities price deck and amid recent sentiment-driven share price movements Macquarie adjusts its outlook.

Aside from marking to market, the most significant changes are an upgrade to near-term lead forecasts, upgrade to medium-term semi-soft coking coal and a cut to long-term copper forecasts. The broker does not believe the modest improvement in fundamentals supports the price movements.

Prices have moved well ahead of underlying demand assumptions. Hence, the broker downgrades South32 to Underperform from Neutral. Target is $1.20.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1

Macquarie is examining its approach to gold miners as the share prices rally. The broker's methodology favours those with strong and sustainable cash flow. Increased gold prices drive modest earnings upgrades.

A number of stocks are still trading above the broker's increased targets. Consequently Saracen Mineral is downgraded to Underperform from Neutral.

Target rises to 90c from 80c.

TREASURY WINE ESTATES LIMITED ((TWE)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/5/1

Credit Suisse remains nervous about the US business, with scan data very weak and suggesting the depletion allowance, a provision the company was using to deplete wholesaler inventory, was supporting underlying volumes.

The broker notes the brands acquired from Diageo also fell by double digits post the transaction date. The company will divest the Asti winery and may close other operations as it integrates the Diageo wine assets.

Credit Suisse downgrades to Neutral from Outperform. Target is reduced to $9.20 from $10.10.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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