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 April 4 to Friday April 8, 2016
Total Upgrades: 3
Total Downgrades: 12
Net Ratings Breakdown: Buy 43.25%; Hold 44.10%; Sell 12.65%

The local share market isn't going anywhere and if we really want to be precise about things: if anything, the pressure seems to be to the downside, as witnessed by a net negative result for the week ending Friday, 8 April 2016.

Yet, for the same week, FNArena registered no less than twelve downgrades for listed stocks against three upgrades only. What's going on?

Overall activity amongst stockbroking analysts has been mixed, if not tepid. Several morning reports are being issued without one single report featuring an individual company (go figure). Underneath this apparent placid appearance several opposing themes have been responsible for various noticeable moves.

It is not a coincidence two of three upgrades for the week concerns local gold producers Beadell Resources and Evolution Mining as analysts are revising their gold forecasts upwards. However, investors should also note the inclusion of other gold stocks in the list for downgrades. Clearly, some gold stocks are more precious than others at this point in the revival cycle.

Another factor is pure and plain bad news. Cimic is in the midst of yet another bribery scandal. Downer EDI lost a big contract. Estia Health might be facing more pressure from the government in Canberra. Nine Entertainment issued a profit warning. National Australia Bank is, well, a bank. Only few downgrades specifically related to share prices looking too bubbly.

With the exception of Nine Entertainment, Downer EDI and Estia Health there was hardly any negative movement in valuations/price targets. This while there is plenty to brag about on the positive side with Aconex's 8.6% gain leading the pack, followed by Cimic and APN Outdoor. Note competitor oOh!Media is not that far behind.

There are more fireworks when it comes to downward adjustments to earnings estimates. This should not surprise as stockbrokers have started to update their assessments and forecasts for commodity prices. Western Areas continues to carry the weight of over-supply and too little response from producers. BHP Billiton has a similar story to tell, more focused around copper and coal. Bank of Queensland, disappointing at the interim release, closes the negative top ten (-2.42%).

The week's top two for positive revisions to earnings forecasts is occupied by Perseus Mining and Alacer Gold, further corroborating the precious metal theme, followed by Magellan Financial, APN Outdoor and Domino's Pizza. OceanaGold and St Barbara are also in the week's Top Ten.

Upgrade

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

The results of the pre-feasibility study for the Urucum underground mine indicate it is a low capex and relatively low cost and long life proposition.

The broker expects this to extend the life of Tucano and deliver a mine better suited to the variable environmental conditions. Rating is upgraded to Outperform from Neutral. Target is raised to 33c from 31c.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 3/2/0

Credit Suisse updates earnings and valuation in the wake of increases to gold price assumptions, upgrading to Outperform from Underperform. The broker forecasts the gold price will peak at US$1,350/oz in FY17.

The broker expects a combination of strong production, falling costs and a high Australian dollar gold price should deliver free cash and a rapid de-leveraging of the Cowal debt. Target is raised to $1.75 from $1.65.

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

The company has undergone a major restructure, closing 16 sites which have been marginal or unprofitable for some time. The cost of the restructure is $44m. The main negative is the $34m in cash outflows, Ord Minnett contends, significant for a company with a $170m market cap.

The broker's recommendation is upgraded to Buy from Accumulate, relying on seeing through the FY16 result with a rebound in FY17 and assuming some of the preferred contracts commence.Target price falls to $1.60 from $1.66.

Downgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/1

Credit Suisse offsets FX downgrades with operational upgrades, noting competitors do not have the momentum to unseat the company's market share in Australia.

Growth is expected to slow significantly in FY17 and FY18 relative to the last two years. Aristocrat has achieved 70% market share in segments of the market in Australia and the broker does not expect material improvement in this area.

As the share price has approached the target ($10.50, unchanged). Credit Suisse downgrades to Neutral from Outperform.

CIMIC GROUP LIMITED ((CIM)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/2

Macquarie has reviewed Cimic, using a discounted cash flow approach to better capture multi-year growth. The company is exposed to an attractive infrastructure theme, with a buy-back in place.

Macquarie continues to like the margin and cash flow improvement.Target rises to $35.85 from $28.50. Rating is downgraded to Neutral from Outperform. The broker believes a FY16 earnings upgrade is unlikely, with revenue in transition ahead of a pick up in FY17.

DOWNER EDI LIMITED ((DOW)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/2/0

Morgan Stanley did not expect Downer would lose its entire Fortescue Metals ((FMG)) contract. Strategically, the broker believes this calls into question the future of the mining operations.

The broker did not expect Fortescue would take the operational risk of removing Downer from the Christmas Creek mine from October for what is likely to be a limited saving. The broker forecasts a $54m reduction in Downer's mining earnings in FY17.

Rating is downgraded to Equal-weight from Overweight. Target is lowered to $3.33 from $3.65. Industry view is Cautious.

The company has been given six months notice that Fortescue Metals ((FMG)) will be taking mining operations at Christmas Creek in house. Ord Minnett was not altogether surprised by the action but notes the contract loss is material.

Ord Minnett suspects earnings were likely to decline even before the loss of this contract. FY17-18 forecasts are reduced by 10%. The broker downgrades to Lighten from Hold and lowers the target to $3.10 from $3.35.

The risks to this call are wins in large contracts for rail or power maintenance. Moreover, the market may decide to buy contractors for the longer term recovery in earnings. At this point the broker acknowledges the stock could re-rate.

ESTIA HEALTH LIMITED ((EHE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

The Dept of Health is now projecting aged care funding outlays to be 2.1% above forecast in FY16. History suggests that when outlays exceed forecasts, the government introduces measures to recoup some of that amount, Macquarie notes. Last year's MYEFO included announced savings to come from as yet unknown changes to aged care funding.

The broker has pulled back its earnings forecasts for listed aged care providers, offset to some extent by assumed cost controls measures. Downgrades of 3-5% have been applied for each provider.

Macquarie cannot see a catalyst to re-rate Estia prior to its August result release, and hence downgrades to Neutral. Target falls to $6 from $7.

NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Hold from Add by Morgans .B/H/S: 2/5/1

Morgans suspects the major banks may need to increase provisions for certain single name exposures that are currently in trouble. Stress in the consumer segment is also increasing with the broker noting softness in the economies of Queensland and Western Australia.

Most of the institutional names in trouble belong to the resources sector, which suggests to Morgans a broad-based problem. The broker lowers earnings forecasts for each of the major banks, largely because of higher bad debt charge forecasts and lower net interest margin forecasts.

The broker downgrades to Hold from Add. Target is reduced to $25.90 from $26.20.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Sell from Hold by Ord Minnett .B/H/S: 3/1/2

Credit Suisse interpret's management's profit warning above anything as a company-specific ratings/revenue share issue. Seven West Media should be the prime beneficiary, in the analysts' opinion.

Credit Suisse downgraded Nine Entertainment to Neutral from Outperform, while cutting the price target to $1.20 from $1.90. Earnings forecasts have been cut both for Nine and for Ten Network, but raised for Seven.

Nine Entertainment's trading update signals a slow start to 2016 Free-To-Air TV advertising spending. As a result Ord Minnett lowers second half forecasts to a fall in the market of 2.5% from 1.0%.

In addition, the broker downgrades to Sell from Hold. The broker envisages FTA audience declining 3.8% in 2016 so far, following the 6.0% decline in 2015. The broker believes this is the beginning of a structural decline in FTA advertising dollars. Target price is reduced to $1.00 from $1.60.

OCEANAGOLD CORPORATION ((OGC)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/2/2

Credit Suisse updates earnings and valuation in the wake of higher gold price assumptions. The broker forecasts the gold price will peak at US$1,350/oz in FY17.

This more than offsets weaker copper price forecasts. The broker considers the company is rapidly transitioning ot a long-life, low-cost operation, underpinned by Didipio and Haile.

Rating is downgraded to Underperform from Neutral given the recent gains in the share price. The target is raised to $3.45 from $3.37.

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

Credit Suisse updates earnings and valuation in the wake of weaker copper price assumptions, downgrading to Neutral from Outperform and the target to $4.95 from $5.80.

Oz Minerals has the advantage of a strong cash balance and potential development of the long-life Carrapateena project, the broker observes. Moreover, Carrapateena's conceptual schedule pushes production out to when a higher copper price is envisaged.

SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 4/1/0

Smartgroup has renewed its contract with the Queensland government to provide salary packaging for a further three years. The novated leasing part of the contract is still subject to tender. Ord Minnett believes this presents a risk if it is not renewed. The upcoming federal budget also presents a risk that FBT laws are changed but the broker suspects this is unlikely.

The increase in the share price since early March has meant the stock is now trading close to the broker's target so the rating is downgraded to Hold from Accumulate. Target is steady at $4.94.

WEBJET LIMITED ((WEB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/2/1

The stock has enjoyed a material re-rating, Morgan Stanley observes, despite a shift in the business mix that adversely affects working capital.

Moreover, the broker considers the valuation is stretched and, with intense competition in business-to-business and patchy returns, the broker downgrades to Underweight from Equal-weight . Target is $4.30. Industry view: In line.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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