Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features GRAINCORP LIMITED, and other companies.
For more info SHARE ANALYSIS: GNC
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, 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 21 to Friday March 25, 2016
Total Upgrades: 5
Total Downgrades: 18
Net Ratings Breakdown: Buy 43.36%; Hold 44.20%; Sell 12.44%

Far more downgrades than upgrades. The story remains the same for ASX-listed stocks and the week ending on the Thursday before Good Friday was no exception. FNArena recorded 18 downgrades in recommendations for individual stocks against only five upgrades, of which three were to Buy (or equivalent).

Resources stocks continue to attract the lion's share of changes in broker ratings, in particular on the negative side of the ledger. Also remarkable is that most companies reporting attract downgrades but this is without exception preceded by an upward move in share price in response to the financial report first.

Banks equally feature on the negative side and that cannot be a surprise given both ANZ Bank and Westpac communicated some negative news about increased provisions last Thursday. BHP Billiton continues to feature for positive revisions to earnings estimates. In this case it means analysts continue to narrow their predictions for losses this year. But still, it is an indication the trend is no longer down for the Big Australian.

For the resources sector in general, BHP's apparent reversal in fortune is as yet not shared by the broad sector as illustrated by the many sector peers on the receiving end of negative revisions to valuations/price targets and forecasts and recommendations. At least there are sector representatives on the positive side too, and not only producers of gold bullion.

Upgrade

ARDENT LEISURE GROUP ((AAD)) Upgrade to Add from Hold by Morgans .B/H/S: 3/4/0

The company intends to divest its d'Albora marina portfolio. Morgans assumes the company's benchmark is the book value of the business at $108m. The company intends to use the proceeds to accelerate the roll out of Main Event.

Morgans notes the market has been anticipating this sale for years and it makes sense. The broker considers the announcement a key catalyst for the stock as it alleviates concerns around a stretched balance sheet and re-deploys capital to a higher returning business.

Target rises to $2.45 from $2.01. Rating is upgraded to Add from Hold.

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/3/0

Macquarie refreshes its views on the company's performance post the 2015 results. Expectations have been trimmed around margins on transport fuels.

While there are risks to 2016 earnings the broker believes these will ebb, with the benefits from Tabula Rasa and Ampol likely to compensate for the medium-term marketing challenges.

Macquarie upgrades to Outperform from Neutral. Target is $35.

GRAINCORP LIMITED ((GNC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/1/1

After recent share price weakness Credit Suisse upgrades to Outperform from Neutral. Target is reduced to $8.30 from $8.55.

The broker believes the current share price more than adequately reflects downside to domestic storage and logistics volume and there is upside from a return to more normal grain trading and local growing conditions.

SOUTH32 LIMITED ((S32)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 3/4/1

An accelerated cost reduction plan has changed Morgan Stanley's perspective. The broker upgrades to Equal-weight from Underweight.

Capturing the cost profile increases earnings forecasts by 3c per share and the target rises to $1.65 from 90c. The broker notes the balance sheet is strengthening and there are no immediate project investment decisions.

Commodity prices remain the main driver of sentiment. Sector view is In-Line.

See also S32 downgrade.

TPG TELECOM LIMITED ((TPM)) Upgrade to Hold from Reduce by Morgans .B/H/S: 1/3/1

First half results impressed Morgans, with strong growth and earnings from the recently acquired iiNet. Morgans upgrades earnings estimates by 11.5%.

The broker had previously assumed margin pressure under an NBN would be more severe but now expects TPG will pull sufficient costs out of iiNet in the medium term to offset this a little.

The broker upgrades to Hold from Reduce. Target is raised to $10.11 from $7.55.

Downgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/4/0

Morgan Stanley downgrades to Equal-weight from Overweight given the uncertainty over the ASIC F&I review and potential changes to dealer commissions on finance and insurance.

The broker does not include any potential changes in its base case assumptions and expects 7.2% earnings growth out to FY18. Sector view is In-Line. Target falls to $4.35 from $4.75.

ANSELL LIMITED ((ANN)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/6/0

The share price is up some 15% from recent lows but the global context remains fragile, leading Citi analysts to conclude risks are now more balanced, hence a downgrade to Neutral from Buy.

Updating their modeling, the analysts have sliced forecasts and the result is a small cut to the price target; $17.85 from $18.56. Given the recent operational issues a timely operational turn-around is not assured, highlight the analysts.

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

ANZ is re-assessing its Asian strategy. UBS observes, while Asian revenue has grown the cost bases are too high and growth has been very capital intensive.

The broker expects the bank to reduce its exposure further and, if product spreads do not improve, there is the prospect of a more significant pull back.

A capital release from a pull back in Asia is expected to help maintain the dividend. This is predicated on a soft landing in Asia, the broker highlights.

Rating is downgraded to Neutral from Buy as UBS envisages few catalysts for outperformance until a successful pull back in Asia is demonstrated. Target is reduced to $26.50 from $27.00.

DULUX GROUP LIMITED ((DLX)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/3

Credit Suisse suspects a softer outlook for demand is likely to drive the underperformance in the share price and this may also be the catalyst to unwind the stock's valuation premium.

Short term, the broker believes the greatest risk to the stock is market expectations, which are considered to be unrealistic. The temptation to take profits is too great and Credit Suisse downgrades to Underperform from Neutral.

Target is reduced to $5.90 from $5.95.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/2/1

Deutsche Bank has updated its model in line with commodity and currency forecasts, which has reduced the valuation by 5.0%.

Higher short to medium term Australian dollar forecasts impact earnings and cash flow for the company although the company's gold hedging benefits.

As a result Evolution Mining is downgraded to Hold from Buy on valuation. Target is lowered to $1.80 from $1.90.

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/4/2

Deutsche Bank has reduced medium and long-term iron ore forecasts in its quarterly review. FX estimates for the Australian dollar have been increased. These changes offset an increase in the broker's assumed price realisations for Fortescue.

Deutsche Bank downgrades to Hold from Buy on valuation and the target is lowered to $2.60 from $2.80.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/4/0

Deutsche Bank has downgraded nickel price forecasts and raised Australian dollar assumptions, which has significantly reduced FY16-18 earnings estimates.

Rating is downgraded to Hold from Buy after the strong share price appreciation. Target is reduced to $3.10 from $3.20.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/2/4

Deutsche Bank has reduced medium and long-term iron ore price forecasts in its quarterly review, which impacts the company's MAC royalty. Mineral sands price increases appear unlikely in the near term but the broker believes pricing has found a floor.

The broker reduces its valuation and as a result the target is lowered to $6.20 from $6.60. Rating is downgraded to Sell from Hold, given the recent strong share price performance.

MINERAL RESOURCES LIMITED ((MIN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/2/0

Deutsche Bank has reduced medium and long-run forecasts for iron ore in its quarterly review. FX estimates for the Australian dollar have increased. Offsetting this for Mineral Resources is better iron ore price realisations and costs.

Deutsche Bank downgrades to Hold from Buy on valuation. Target is raised to $6.70 from $6.60.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/1

First half profit was better than UBS expected. While there were positive signs in the transformation progress the broker considers it still early days. The broker's channel checks suggest industry trends softened in February/March.

UBS downgrades to Neutral from Buy, following the 17% lift in the share price since November. The broker expects competition pressures and the Australian dollar will hit harder in the second half. Target is raised to $1.25 from $1.20.

NUFARM LIMITED ((NUF)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/1

First half results were in line with prior announcements. A new analyst takes up coverage of the stock for Credit Suisse with the rating downgraded to Neutral and $7.90 target.

The broker reduces earnings estimates by 4-5% to account for higher interest costs and further FX losses in Latin America. Credit Suisse expects M&A speculation will dissipate, with Fuhua, whose chairman recently acquired a 5.0% stake, an unlikely acquirer.

OZ MINERALS LIMITED ((OZL)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 2/4/2

Deutsche Bank has lowered its long-term copper price estimates which has reduced valuation by 12%. No changes have been made to Prominent Hill or Carrapateena assumptions.

Rating is downgraded to Sell from Hold on valuation. Target is lowered to $4.50 from $5.10.

PREMIER INVESTMENTS LIMITED ((PMV)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/2

There's more to Premier Investments' "impressive" half-yearly performance than initially meets the eye. Citi analysts see slower growth ahead and margin pressure as FX hedging benefits disappear.

Citi downgrades to Sell from Neutral with the share price seen as "fair value" but weakness is anticipated on slowing in the pace of growth. Target lifts to $13.80 from $12.00.

RCR TOMLINSON LIMITED ((RCR)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 2/0/0

The company has been awarded an early contractor involvement in a 200MAW solar farm. Ord Minnett does not expect the contract for the entire project will occur until FY17, at which point it could become material. The broker believes the rally on the latest news is overdone as the announced added little to the current environment.

The company has several contracts at the preferred stage which bodes well for the medium term, the broker maintains. Ord Minnett has lowered FY16 forecasts because of lower expectations in the infrastructure and energy division, where contracts are at the preferred stage but not yet commenced.

Rating is downgraded to Accumulate from Buy, but the broker would look to buy on price weakness. Target price falls to $1.66 from $1.70.

SOUTH32 LIMITED ((S32)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/4/1

Deutsche Bank has reduced nickel and alumina price forecasts in its quarterly review. FX estimates for the Australian dollar and the South African rand have been increased. For South32 this is partly offset by an increase in zinc price forecasts.

Deutsche Bank downgrades to Hold from a Buy rating on valuation. Target is reduced to $1.70 from $1.80.

See also S32 upgrade.

SIGMA PHARMACEUTICALS LIMITED ((SIP)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/0

FY16 results were ahead of Credit Suisse forecasts. While PBS revenues are under pressure the broker expects the winding back of trade discounts to pharmacy should sustain the company's gross profit through 2017.

With an ungeared balance sheet the business is expected to pursue suitable M&A opportunities with scope for incremental capital management.

That said, Credit Suisse considers the stock is fair value at current levels and downgrades to Neutral from Outperform. Target is raised to $1.05 from 83c.

TABCORP HOLDINGS LIMITED ((TAH)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/2/3

Credit Suisse has reviewed the situation relating to the alleged payment to a politically exposed Cambodian consulting firm. The broker suspects the valuation implications are insignificant.

Although there is a longer term value opportunity for investors, the broker suspects negative sentiment may surround the stock for some months. Rating is downgraded to Neutral from Outperform. Target is reduced to $4.30 from $5.00.

WESTERN AREAS NL ((WSA)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 3/2/2

Deutsche Bank has downgraded nickel price forecasts and raised Australian dollar assumptions. The broker now expects Western Areas to report negative earnings in FY16.

Rating is downgraded to Sell from Hold on valuation. Target is lowered to $1.90 from $2.20.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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