Weekly Recommendation, Target Price, Earnings Forecast Changes

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

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 July 4 to Friday July 8, 2016
Total Upgrades: 14
Total Downgrades: 7
Net Ratings Breakdown: Buy 42.41%; Hold 43.77%; Sell 13.81%

There is a lot more happening in the present share market other rthan macro fears and uncertainty. Resources stocks are making a come-back as stockbroking analysts put higher prices and forecasts through their modeling.

For the week ending Friday, 8th July 2016, FNArena registered 14 upgrades for individual stocks against 7 downgrades. Many of these are resources related. The majority of resources representation is on the positive side.

Beach Petroleum was the only stock to receive two recommendation upgrades for the week. Both didn't go further than Neutral.

Overall changes to valuations and price targets remain moderate, with only Evolution Mining and Regis Resources enjoying double digit increases, but on the negative side are only two stocks for the entire week.

No surprise, resources stocks also dominate the table for positive changes to earnings estimates, with BHP Billiton once again in leader position. Somewhat surprising, maybe, is Clydesdale (CYBG plc) also sits on the positive side.

There are some heavy falls in earnings estimates, with Beach Petroleum leading the negative side, followed by Whitehaven Coal, AGL Energy, Perseus Mining and QBE Insurance. All suffered double digit downgrades.

Also notable is that, with only three more weeks before August, there hasn't been a great deal in terms of corporate profit warnings thus far. A good omen for the upcoming reporting season?

Upgrade

AVEO GROUP ((AOG)) Upgrade to Add from Hold by Morgans .B/H/S: 3/1/0

The share price has fallen around 10% from its highs but Morgans expects a strong result, which creates an attractive accumulation point. The broker believes the risk lies to the upside if strong momentum in the non-retirement sales/margins has continued throughout the second half.

The broker observes Aveo Group is trading at a discount to its aged care peers and yet does not carry the same regulatory risk. Rating is upgraded to Add from Hold. Target is steady at $3.52.

BHP BILLITON LIMITED ((BHP)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 4/3/1

Favourable revisions to metals and currency have led to material earnings upgrades across Ord Minnett's coverage.

Nevertheless, the broker believes the recent positive momentum miners have shown is likely to fade in the near term as global growth fears post Brexit surface and China's commodity demand slows for seasonal reasons. Revisiting price to net present value (NPV) multiples suggests the sector is generally fairly valued.

Ord Minnett upgrades BHP to Hold from Lighten and the target to $19 from $18 because of an improved free cash flow outlook and higher net present value.

BORAL LIMITED ((BLD)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/1

Following share price weakness, Citi analysts have upgraded to Buy from Neutral. They remain confident the domestic infrastructure construction outlook, among other factors, facilitates a projected 18% jump in EPS in FY17.

Current political uncertainty is not seen as a threat to the company's outlook. Price target $6.80 (up from $6.59).

BEACH ENERGY LIMITED ((BPT)) Upgrade to Neutral from Sell by UBS and Upgrade to Neutral from Sell by Citi .B/H/S: 2/5/0

UBS is raising near-term oil price forecasts, expecting Brent to average US$51/bbl in the second half and US$60/bbl in 2017. The broker notes this modest boost to forecasts has a positive impact on earnings and valuation, partly offset by a rise in the Australian dollar.

UBS upgrades to Neutral from Sell. Target is raised to 60c from 55c.

Beach Petroleum's portfolio of assets is not without challenges in a low oil price environment, Citi analysts remind investors. But with oil prices approaching US$50/bbl the analysts suggest there's an incentive to spend to increase Cooper production.

The analysts see cost out opportunities for the JV with Santos ((STO)). Management is focused on growing shareholders' value and the company is net cash, point out the analysts.

Citi has upgraded its rating to Neutral from Buy. New price target is 71c, up from the prior 67c.

COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/3/1

The stock is trading near its GFC lows but Morgan Stanley's channel checks suggest volume trends are improving. The broker considers the stock is cheap and the widely acknowledged concerns over sugar are overstated.

The valuation is now compelling and the broker upgrades to Overweight from Equal-weight. In-Line sector view and $10 target retained.

Morgan Stanley also notes that analysis suggests that higher price point products such as the company's brands are likely to be least affected by the introduction of container deposit schemes.

FANTASTIC HOLDINGS LIMITED ((FAN)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/1/0

The FY16 trading update and guidance indicates to Ord Minnett that underlying earnings growth is accelerating. The broker believes the strength in underlying performance is evidence the turnaround that commenced under previous management is continuing.

Rating is upgraded to Accumulate from Hold and the target is raised to $2.40 from $2.00.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/0

Base fees are to be reduced to a flat 1%, from 1.75% below $1bn. The savings for Macquarie Atlas are $7.5m per annum. Morgans increases 2017-18 forecast distributions by 7% as a result.

The broker expects distribution guidance at the August results and suspects the outlook will be influenced by actions following the exit of its Dulles Greenway co-investor later this year. Macquarie Atlas will need to raise capital if it is a buyer of the stake.

Rating is upgraded to Add from Hold, given the increase in total potential returns. Target rises to $5.61 from $5.46 as a result of the decline in the base fee.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/3/4

Favourable revisions to metals and currency have led to material earnings upgrades across Ord Minnett's coverage.

Nevertheless, the broker believes the recent positive momentum miners have shown is likely to fade in the near term as global growth fears post Brexit surface and China's commodity demand slows for seasonal reasons. Revisiting price to net present value (NPV) multiples suggests the sector is generally fairly valued.

The broker upgrades Regis Resources to Hold from Lighten and the target to $3.60 from $1.70 due to higher gold prices and lower currency.

SEEK LIMITED ((SEK)) Upgrade to Add from Hold by Morgans .B/H/S: 3/4/0

Morgans upgrades to Add from Hold following recent share price weakness and a re-evaluation of forecasts. The broker suspects recent guidance for underlying FY17 profit of $215-220m is based on conservative assumptions.

The broker considers the high level of free cash generation provides an adequate buffer to potential risks. The recent pull back, therefore, makes the stock compelling. Target is raised to $16.89 from $16.15.

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/3/1

UBS downgraded Suncorp to Neutral from Buy following the company's investor day, being wary of earnings rebasing by the incoming CEO. Subsequent price weakness amidst market volatility now has the broker upgrading back to Buy.

UBS has not otherwise changed its view and continues to see the yield as attractive. Special divs may be in the offing if Banking and General Insurance growth remains benign but it is not the broker's base case. Target rises to $13.00 from $12.75.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/2/1

Morgan Stanley considers the short-term price action following the UK decision to leave the EU presents opportunities. The broker suspects any drop in inbound passengers from UK/Europe will be short term and partially offset by growth in outbound travel and more than offset by growth in Asian passengers.

The stock continues to deliver reliable yields and the broker considers the longer-term value is worthy of an upgrade. Morgan Stanley upgrades to Overweight from Equal-weight. Cautious sector view. Target is raised to $7.19 from $6.36.

TRADE ME GROUP LIMITED ((TME)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 1/2/2

The shares are now trading in line with Deutsche Bank's revised target and the rating is upgraded to Hold from Sell. The three major issues, momentum in general items, market share in property and margins are tracking favourably and the broker upgrades estimates.

Deutsche Bank is constrained from taking a more positive view given the longer term growth potential is limited. Target is raised to NZ$4.68 from NZ$3.95.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/4/1

UBS is raising near-term oil price forecasts, expecting Brent to average US$51/bbl in the second half and US$60/bbl in 2017. The broker notes this modest boost to forecast has a positive impact on earnings and valuation, partly offset by a rise in the Australian dollar.

The broker upgrades Woodside to Buy from Neutral. Target is raised to $29.50 from $27.60.

Downgrade

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/8/0

Morgan Stanley expects the company's results will surprise positively with upside risks including capital initiatives, reserve releases and reinsurance recoveries from the NZ 2010 quake losses.

Still, the broker considers the valuation is full and the rating is downgraded to Equal-weight from Overweight. Target is reduced to $5.50 from $5.60. In-Line industry view.

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

Soft demand for nickel products suggest to UBS that the supply side needs to re-balance the trade. Another round of 100-150,000 tonnes per annum of closures is estimated to be needed.

The broker suggests this is more likely in the latter stages of 2016 or in 2017. Independence Group's assets have long term appeal, and the broker lifts earnings estimates following a 10% increase in gold price forecasts.

Yet the rating is downgraded to Neutral from Buy on share price strength. Target is raised to $3.70 from $3.30.

MANTRA GROUP LIMITED ((MTR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/5/0

A softer outlook has resulted in Credit Suisse downgrading to Neutral from Outperform. The broker re-assesses forecasts for FY17-18 in the light of additional rooms, the management structure and industry commentary on revenue trends.

The broker suspects M&A is the most likely near-term upside catalyst and estimates Mantra can spend up to $100m and achieve 10% accretion in FY17.

That said, a more robust organic outlook is required to justify a higher multiple and the broker expects the stock to be range bound in the near term. Target slips to $3.75 from $4.75.

ORORA LIMITED ((ORA)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/3/0

Citi analysts remain positive about the company's growth prospects, which continue to be seen as "attractive". With acquisitions now part of the mix, the analysts do believe the going might get tougher as competition for North American assets is increasing.

But it is above anything the valuation that is becoming the key deterrent to retain a Buy rating. Hence why the analysts have now pulled back to Neutral. The target price has only gained 10c to $2.70 and that's not far off from where the share price currently is trading.

RCG CORPORATION LIMITED ((RCG)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0

Citi has lifted its price target to $1.77 from $1.60 post the announced acquisition of DC Hype. The rating has been pulled back to Neutral from Buy following the strong share price reaction.

The analysts had previously vented their frustration about the share price, but note there's a big premium built in now. Citi also sees athleisure as a trend, not as a new shift, and this means the analysts retain a conservative view on the future.

SAI GLOBAL LIMITED ((SAI)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/6/0

Credit Suisse believes the company's strategy is on the right track but the time required to show better growth, together with known future challenges, offsets the valuation appeal. Rating is downgraded to Neutral from Outperform.

Negative earnings revisions means FY16 estimates are moved to be in line with updated guidance, with reduced FY17 growth forecasts. Target declines to $3.90 from $4.40.

SELECT HARVESTS LIMITED ((SHV)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/2/0

UBS had been surprised by an increase in Select Harvest's growing costs in its first half result but now appreciates that this reflects an investment in yield uplift.

Select Harvest is rapidly becoming a major almond producer and is thus moving down the cost curve, with net costs expected to be below that of Californian competitors.

UBS has increased its forecast production numbers and lifted its almond price forecasts, resulting in a target price increase to $7.08 from $4.60, but on valuation the broker downgrades to Neutral.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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