Tag Archives: Media

article 3 months old

One To Watch: Seek

LAYMANS:

In terms of our wanted trajectory we couldn’t have asked for too much more from Seek with price rotating down to our target nicely. The rise off those lows is also a step in the right direction but needs to continue unabated for us to be confident that a strong and sustainable trend is about to unfold. There are likely to be a few sellers around the $7.00 region so it would come as no surprise to see a pause for breath at those slightly higher levels. As long as a powerful reversal doesn’t kick into gear from that zone then the bullish case remains intact. The larger degree patterns also look positive meaning if our shorter term expectations play out as anticipated the much larger move north we’re looking for is still on the cards. The one thing we don’t want to see is a swift reversal taking price beneath $5.64. It wouldn’t necessarily move us to a bearish stance but it would imply that the company isn’t quite ready to head higher in the immediate future. So one to watch over the coming days and weeks where hopefully price action can gain momentum and test those aforementioned levels sooner rather than later.


TECHNICAL:

Although the more textbook zigzag didn’t complete the retracement into wave-(ii) the 50.0% retracement level was all but tagged before the recent turnaround kicked in. Also notice the clear Type-A bearish divergence at the high of wave-b which also coincided with the clear rejection of higher prices. It’s something that rarely lets us down and although it doesn’t necessarily mean that weakness is going to unfold the prior pivot high is unlikely to be breached until the oscillator rotates back into the oversold position. Exactly what’s transpired here with the rally over the past few days commencing with our indicator already having unwound. In theory wave-(iii) should be underway which as always needs to be very strong and impulsive in nature. We also normally expect it to subdivide and extend which means it should travel at least 1.618x the length of wave-(i). This gives a target up around the $8.00 zone offering plenty of upside potential over the weeks and even months ahead. That said there’s no point getting too carried away at this stage and we are looking quite a way ahead. There is the small matter of the overhead resistance to contend with which will likely prove difficult to penetrate – at least at the first attempt. A break beneath the low of wave-(ii) would be far from ideal though it wouldn’t invalidate our count. However, it’s important that the typical retracement zone isn’t breached as it would put serious stress over our labelling and be reason to be highly dubious in regard to our bullish interpretation.

Trading Strategy

2/12:

From a trading perspective it’s unfortunate that price didn’t quite reach the typical retracement zone. In fact it came within just $0.04 of doing just that. Aggressive traders could buy following a penetration above today’s high which looking at our longer term objectives would provide a nice risk/reward trade if our labelling is correct. However, we need to be cognizant of the overhead resistance which could potentially be a stumbling block. Clear rejection of those higher levels accompanied by increasing volume would be reason to tighten the trailing stop and defend open positions. Longer term investors could accumulate partial positions in this general region and look to top up following a comprehensive break up through the resistance zone. There remains plenty of upside potential for SEK although there is not too much room for meandering from here.

 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher.

The above views expressed are not FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has seen downgrades again outnumber upgrades, as the eight brokers in the FNArena database have cut ratings on 10 stocks while lifting recommendations on just three. Total Buy ratings remain at 57.4%, little changed from last week.

Among those upgraded were Metcash ((MTS)) post the group's interim profit result. While the result was slightly weaker than the market had expected the medium-term earnings outlook is improved by the fact the legal uncertainty of the proposed Franklins acquisition has now mostly passed. 

This was enough for JP Morgan to upgrade to a Neutral rating, while Credit Suisse went one better and upgraded Metcash to Outperform from Neutral to reflect both the Franklins purchase and improved valuation post recent share price weakness. Targets and earnings estimates were adjusted across the market.

Seven West Media ((SWM)) was the other upgrade for the week, Citi lifting its rating to Buy from Neutral. While ad market conditions remain difficult, the broker suggests lead indicators are turning a little more positive. 

The still tough conditions mean stock selection will be important in the sector and here Citi also sees reasons to like Seven West relative to peers. Citi's upgrade was accompanied by changes to earnings estimates and price target. On the same basis Citi has downgraded APN News and Media ((APN)) to Neutral from Buy, while also cutting its price target for the stock. 

An in-line interim result from Campbell Brothers ((CPB)) wasn't enough to stop Deutsche Bank downgrading the stock to Hold from Buy, though the change is a valuation call rather than one indicating any concerns over the growth outlook for the company. Forecasts and price targets for Campbell Brothers across the market rose on the back of the result.

Weak end markets continue to impact on earnings for GUD ((GUD)) and RBS Australia has lowered its estimates and price target accordingly. The changes have caused the broker to downgrade to a Hold rating on the stock.

Recent share price outperformance and the fact the company will be cycling tough comparable numbers in coming months has prompted RBS to downgrade Nufarm ((NUF)) to a Hold rating. There are only minor associated changes in forecasts and price target from brokers covering the stock post a trading update from management.

Primary Health Care ((PRY)) has offered fresh earnings guidance to the market in the past week but the issue for BA Merrill Lynch is the guidance doesn't appear to be conservative. This suggests limited scope for outperformance, which is enough for the broker to downgrade to a Neutral rating. The update from management has seen only minor changes to estimates and targets across the market.

A more disappointing trading update from management at Symex ((SYM)) has seen RBS take the axe to its numbers, the broker more than halving its price target. Given a debt/cost restructuring now looks more critical, the broker has downgraded to a Neutral rating.

RBS has also downgraded TPG Telecom ((TPM)) to a Hold rating, as while the company has lifted its stake in iiNet ((IIN)) the broker sees any deal between the two as difficult given cultural differences. The change in shareholding in iiNet also sees the broker adjust its price target and earnings assumptions.

Disappointing production guidance was enough for both BA-ML and UBS to downgrade ratings for Woodside, the former to Underperform and the latter to Neutral. Brokers across the market have cut earnings forecasts and price targets post the update, with a couple of mentions for Santos (STO)) as a preferred play in the sector at present.

Concerns over the growth profile for Wotif.com ((WTF)) have seen Citi downgrade to a Sell rating, this given concerns over too much leverage to domestic tourism. A cut in price target follows from changes to earnings estimates.

With UBS initiating coverage of Regis Resources ((RRL)) with a price target above others in the market there has been a lift in the consensus target for the stock, while the broker also sees some upside potential in Cardno ((CDD)) and has lifted its target there as well. The consensus target for Bathurst Resources ((BTU)) has also come down slightly on the back of Citi initiating coverage.

In terms of changes to earnings estimates, forecasts for Air New Zealand ((AIZ)) have come down to reflect high fuel costs, while weak guidance from management at Qantas ((QAN)) has also resulted in some cuts to expectations.

The potential for spending cuts in the IT sector have impacted on BA-ML's model for Technology One ((TNE)), while some adjustments to commodity price forecasts saw earnings estimates trimmed for Rio Tinto ((RIO)).

Higher costs have seen minor changes to models for Santos ((STO)), while the potential for Alacer Gold ((AQG)) to lose part of its stake in the Copler project proved enough for UBS to cut its numbers and price target.

On the positive revision side, higher than expected guidance from Miclyn Offshore ((MIO)) saw Macquarie lift its estimates and price target, while the broker also made some changes to its model for Macquarie Atlas ((MQA)).

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 Metcash Limited Sell Neutral JP Morgan
2 Metcash Limited Neutral Buy Credit Suisse
3 SEVEN WEST MEDIA LIMITED Neutral Buy Citi
Downgrade
4 APN NEWS & MEDIA LIMITED Buy Neutral Citi
5 Campbell Brothers Limited Buy Neutral Deutsche Bank
6 G.U.D. HOLDINGS LIMITED Buy Neutral RBS Australia
7 NUFARM LIMITED Buy Neutral RBS Australia
8 PRIMARY HEALTH CARE LIMITED Buy Neutral BA-Merrill Lynch
9 SYMEX HOLDINGS LIMITED Buy Neutral RBS Australia
10 TPG TELECOM LIMITED Buy Neutral RBS Australia
11 WOODSIDE PETROLEUM LIMITED Neutral Sell BA-Merrill Lynch
12 WOODSIDE PETROLEUM LIMITED Buy Neutral UBS
13 WOTIF.COM HOLDINGS LIMITED Neutral Sell Citi
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 MMX - 67.0% - 33.0% 34.0% 3
2 MTS - 13.0% 13.0% 26.0% 8
3 BTU 50.0% 67.0% 17.0% 3
4 GNC 50.0% 67.0% 17.0% 6
5 SUL 33.0% 50.0% 17.0% 6
6 RFG 50.0% 67.0% 17.0% 3
7 SWM 63.0% 75.0% 12.0% 8
8 AQG 40.0% 50.0% 10.0% 6
9 RRL 67.0% 75.0% 8.0% 4
10 CDD 67.0% 75.0% 8.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 WPL 63.0% 38.0% - 25.0% 8
2 TPM 100.0% 75.0% - 25.0% 4
3 ORL 100.0% 80.0% - 20.0% 5
4 CHC 100.0% 83.0% - 17.0% 6
5 GUD 67.0% 50.0% - 17.0% 6
6 CPB 29.0% 14.0% - 15.0% 7
7 BSL 43.0% 29.0% - 14.0% 7
8 WTF 38.0% 25.0% - 13.0% 8
9 NUF 38.0% 25.0% - 13.0% 8
10 DJS - 25.0% - 38.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 MMX 0.203 0.390 92.12% 3
2 RRL 3.257 3.618 11.08% 4
3 CPB 49.327 50.830 3.05% 7
4 SWM 4.045 4.151 2.62% 8
5 CDD 6.213 6.333 1.93% 4
6 CHC 2.482 2.500 0.73% 6
7 NUF 4.843 4.866 0.47% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 BSL 0.851 0.627 - 26.32% 7
2 WPL 44.009 40.099 - 8.88% 8
3 RFG 3.085 2.913 - 5.58% 3
4 APN 1.140 1.081 - 5.18% 8
5 BTU 1.000 0.967 - 3.30% 3
6 WTF 4.348 4.216 - 3.04% 8
7 TPM 1.860 1.820 - 2.15% 4
8 DJS 2.796 2.745 - 1.82% 8
9 GUD 9.048 8.898 - 1.66% 6
10 GNC 8.675 8.533 - 1.64% 6
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 COF 8.733 9.733 11.45% 3
2 RRL 15.867 17.150 8.09% 4
3 RFG 26.150 28.033 7.20% 3
4 CPB 286.857 305.329 6.44% 7
5 CDD 55.220 57.570 4.26% 4
6 GNC 79.377 82.617 4.08% 6
7 MIO 21.365 21.934 2.66% 4
8 MQA 8.267 8.433 2.01% 6
9 SWM 41.313 42.075 1.84% 8
10 SUL 51.117 51.717 1.17% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 AIZ 10.322 7.791 - 24.52% 4
2 QAN 14.863 12.988 - 12.62% 8
3 TNE 7.767 7.200 - 7.30% 3
4 RIO 836.708 787.603 - 5.87% 8
5 STO 62.413 59.000 - 5.47% 8
6 AQG 59.396 56.725 - 4.50% 6
7 MML 67.870 64.922 - 4.34% 3
8 SLM 31.033 29.700 - 4.30% 6
9 IFL 43.900 42.700 - 2.73% 7
10 TEL 15.065 14.695 - 2.46% 8
 

Technical limitations

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article 3 months old

The Short Report

By Chris Shaw

On face value the second week of the FNArena Short Report looks very similar to last week, as eight of the top 10 securities are the same and the top seven are in the same order as the week before. But as with last week, the significance comes in identifying changes to short positions rather than the actual percentage of a particular security that has been sold short.

The top 10 short positions over the past week on the ASX have been JB Hi Fi ((JBH)), ISO, the Small Ordinaries index tracker, Fairfax Media ((FXJ)), Billabong ((BBG)), Myer ((MYR)), David Jones ((DJS)), Flight Centre ((FLT)), Gunns ((GNS)), Perpetual Trustees ((PPT)) and Lynas Corporation ((LYC)).

Shorts in Gunns have increased significantly to nearly 8% from just over 5% the previous week, this adjustment occurring in the lead-in to the company's annual general meeting. In contrast, most of the rest of the top 10 have seen little change, the likes of Myer, JB Hi Fi, Fairfax and Flight Centre all recording only minor adjustments in total short positions in the past week.

Numbers have risen slightly for Billabong, which coincides with share price weakness last week some in the market attributed to investors selling given potential for the stock to be removed from the ASX100 index. Removal from such an index would cause some fund selling given the mandates fund mangers have in place in regards to what stocks they can hold in their portfolios.

Outside the top 10, short positions have increased for the likes of Resolute Mining ((RSG)) to more than 2.6% from less than 1.0% previously, this coming after the issue of more than 5.6 million new shares following the exercise of some listed and unlisted options.

Shorts have also increased in Cochlear ((COH)) to more than 6% from around 5% previously, the general uncertainty of the company's product recall being added to by a report from Credit Suisse of market share in bone conduction devices coming under pressure from competitor Med-E1.

Steel plays remain out of favour as short positions in both BlueScope ((BSL)) and OneSteel ((OST)) have risen over the past week, this on the back of BlueScope's move to raise equity to address balance sheet concerns.

Aston Resources ((AZT)) announced changes to its board earlier this month and the market has responded by an increase in short positions, while shorts in Goodman Fielder ((GFF)) also rose leading into the group's annual general meeting.

Bathurst Resources ((BTU)) also saw an increase in short positions leading into the announcement of first coal exports from the Buller project, while investors took the opportunity to increase shorts in Beach Energy ((BPT)) prior to that company's annual general meeting.

On the other side of the market, shorts fell in Energy Resources of Australia ((ERA)) as the company completed a bookbuild for the retail shortfall of a recent equity raising. There are no signs of any major shift in preferences in the uranium sector, as the level of shorts in Paladin are largely unchanged.

Santos ((STO)) has enjoyed a reduction in short selling positions since the last FNArena Short Report, which comes just prior to what was a disappointing update from rival Woodside ((WPL)) in terms of production guidance for the coming year.

While White Energy ((WEC)) has yet to fully resolve its feed coal supply issues, the market has reduced short positions in the stock from more than 2.8% to less than 1.4%, while the market also lowered total shorts in Western Areas ((WSA)) from about 6.3% to less than 5.5% leading into the company's annual general meeting. 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 20294875 98833643 20.53
2 ISO 885115 5401916 16.39
3 FXJ 289084551 2351955725 12.30
4 BBG 28575703 255102103 11.19
5 MYR 62657295 583384551 10.71
6 DJS 52701616 524940325 10.02
7 FLT 8507685 99990391 8.50
8 GNS 66008241 848401559 7.77
9 PPT 2890642 41342420 7.01
10 LYC 110615212 1713846913 6.41

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

Technical limitations

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has proven to be a more balanced one for broker rating changes, the eight brokers in the FNArena database upgrading five ratings while downgrading seven stocks. Total Buy ratings now stand at 57.7%.

Among the upgrades was RBS Australia lifting its rating on Collection House ((CLH)) to Buy from Hold post a trading update that showed ongoing earnings momentum. While an equity raising is expected the size should be modest and given the move will reduce balance sheet leverage RBS sees the decision as a positive.

Also upgraded during the week was Computershare ((CPU)) after the company announced it had received approval for the acquisition of BNY Mellon Shareowner Services. Macquarie saw the announcement as enough of a positive to move to an Outperform rating from Underperform previously, given the long-term growth the deal should deliver.

Brokers across the market have adjusted earnings estimates and price targets for Computershare, not only to reflect the acquisition and two other small bolt-on deals, but to also include AGM earnings guidance that implied still weak operating conditions.

UBS upgraded Myer ((MYR)) post a quarterly sales result that met expectations, which for the broker implies evidence of some form of positive momentum building into the Christmas sales period. While no other ratings were adjusted brokers in general lifted earnings estimates and price targets for Myer on the back of the sales result.

An upgrade to Outperform from Neutral for Qantas ((QAN)) by Macquarie is a reflection of a de-risking of the earnings profile, this following some industrial resolutions. Macquarie has also lifted its price target but lowered earnings for FY12 to account for the airline paying compensation to passengers impacted by the recent grounding. 

On the downgrade side of the ledger, Australian Pipeline Trust ((APA)) saw two downgrades during the week, Macquarie and Credit Suisse moving to Neutral ratings from Outperform previously to account for a less attractive valuation following recent gains for the former and a sector review by the latter. 

Credit Suisse similarly downgraded Diversified Utility and Energy Trusts ((DUE)) to Neutral from Outperform as part of its sector review, while Macquarie has downgraded SP Ausnet ((SPN)) to Neutral from Outperform on the back of a fall in price target. The change reflects cuts to earnings forecasts to account for higher interest costs and a delay to some earnings.

Citi downgraded CSR ((CSR)) to Neutral from Buy post the interim earnings result, this as management downgraded the outlook for coming periods at the time of the result. Cuts to earnings estimates and price targets reflect ongoing headwinds, a theme identified also by others in the market.

Expectations of further falls in employment advertisement volumes have seen BA Merrill Lynch downgrade Seek ((SEK)) to Neutral from Buy, the move accompanied by cuts to earnings estimates and price target. As BA-ML points out, the current share price implies an unemployment rate of 6.0% for Australia, meaning there is downside risk if conditions in the labour market worsen beyond this level.

Citi has moved to Neutral from Buy on White Energy ((WEC)) to reflect uncertainty from news JV partner and coal supplier PT Bayan plans to increase the cost of feedstock coal. The move means increased risk to production expectations at the Tabang plant and so creates enough uncertainty for Citi to take a more cautious stance. The share price tanked following the news.

Ongoing uncertainty as to the full extent of recall issues for Cochlear ((COH)) has prompted Credit Suisse to downgrade to an Underperform rating from Neutral previously. The removal of a previous multiple premium sees the broker lower its price target for the stock as well.

With Citi initiating coverage on Miclyn Offshore ((MIO)) with a Buy rating and $2.15 price target overall ratings and the consensus target for the company have improved, while targets for Brambles have been adjusted slightly post a solid quarterly trading update. 

One consequence of the industrial issues at Qantas is an increase to earnings estimates for Virgin Blue ((VBA)) as both BA-ML and JP Morgan expect earnings to receive a boost from the company having picked up additional traffic in recent months.

Better than expected interim guidance from Seven Group ((SVW)) has seen earnings forecasts lifted across the market, while signs of a recovery for Macmahon ((MAH)) have prompted Macquarie to lift its full year numbers.

JP Morgan now sees a better US market outlook for Aristocrat ((ALL)) and has adjusted its numbers accordingly, while Telecom New Zealand ((TEL)) has seen some minor changes to valuation models leading into structural separation.

The announcement of $50 million in losses related to the flooding in Thailand has led to brokers lowering earnings estimates for Insurance Australia ((IAG)), while commissioning delays have caused Deutsche Bank to lower forecasts for Lynas Corporation ((LYC)). A similar delay to first shipments from Karara have prompted cuts to earnings estimates and price targets for Gindalbie ((GBG)).

Weak interim guidance was enough for brokers to lower forecasts for Perpetual ((PPT)), while difficult trading conditions have seen Credit Suisse trim forecasts for Boral ((BLD)). Orica ((ORI)) has also seen earnings estimates lowered to reflect additional costs stemming from the forced shutdown of the Kooragang ammonia storage facility.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 COLLECTION HOUSE LIMITED Neutral Buy RBS Australia
2 COMPUTERSHARE LIMITED Sell Buy Macquarie
3 MYER HOLDINGS LIMITED Neutral Buy UBS
4 QANTAS AIRWAYS LIMITED Neutral Buy Macquarie
Downgrade
5 AUSTRALIAN PIPELINE TRUST Buy Neutral Credit Suisse
6 CSR LIMITED Neutral Neutral Citi
7 DIVERSIFIED UTILITY AND ENERGY TRUSTS Buy Neutral Credit Suisse
8 SEEK LIMITED Buy Neutral BA-Merrill Lynch
9 SP AUSNET Buy Neutral Macquarie
10 SP AUSNET Buy Neutral UBS
11 WHITE ENERGY COMPANY LIMITED Buy Neutral Citi
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CPU 14.0% 57.0% 43.0% 7
2 BXB 63.0% 75.0% 12.0% 8
3 MYR 13.0% 25.0% 12.0% 8
4 MIO 67.0% 75.0% 8.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 APA 63.0% 38.0% - 25.0% 8
2 SEK 88.0% 75.0% - 13.0% 8
3 COH - 25.0% - 38.0% - 13.0% 8
4 MRM 80.0% 67.0% - 13.0% 6
5 DUE 50.0% 38.0% - 12.0% 8
6 TSE 50.0% 40.0% - 10.0% 5
7 SGT 50.0% 43.0% - 7.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 CPU 8.526 9.277 8.81% 7
2 MIO 1.970 2.015 2.28% 4
3 MYR 2.509 2.563 2.15% 8
4 BXB 7.581 7.626 0.59% 8
5 APA 4.430 4.443 0.29% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 TSE 2.922 2.788 - 4.59% 5
2 MRM 3.500 3.433 - 1.91% 6
3 COH 55.315 54.840 - 0.86% 8
4 DUE 1.796 1.785 - 0.61% 8
5 SEK 7.309 7.265 - 0.60% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 VBA 2.614 2.871 9.83% 7
2 SVW 78.100 81.900 4.87% 4
3 MAH 5.800 5.933 2.29% 3
4 ORI 195.563 199.613 2.07% 8
5 ALL 10.688 10.863 1.64% 8
6 MIO 21.072 21.377 1.45% 4
7 TEL 18.347 18.532 1.01% 8
8 EGP 20.538 20.725 0.91% 8
9 APA 19.163 19.288 0.65% 8
10 IAG 26.725 26.875 0.56% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 LYC 0.850 0.540 - 36.47% 4
2 GBG 1.157 0.771 - 33.36% 6
3 IGO 15.760 12.820 - 18.65% 5
4 DUE 11.169 9.569 - 14.33% 8
5 PPT 154.100 135.400 - 12.13% 7
6 OST 17.043 15.114 - 11.32% 7
7 CSR 17.525 16.225 - 7.42% 8
8 CPU 54.560 51.497 - 5.61% 7
9 PRU 23.600 22.517 - 4.59% 6
10 BLD 26.550 25.425 - 4.24% 8
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The tide appears to have well and truly turned in favour of ratings downgrades on the Australian market, as over the past week brokers in the FNArena database have pushed through 18 cuts in ratings compared to just four upgrades. This brings total Buy ratings to 57.6%, down from 58.2% previously.

A resilient interim earnings result from Macquarie Bank ((MQG)) was enough for BA Merrill Lynch to upgrade to a Buy rating, the change also a reflection of what the broker sees as strong valuation support at current levels. 

As BA-ML points out, if current funding sources prove sustainable the value available from annuity-style income alone is enough to justify most of the current market value of the bank. This implies upside when an improvement in market conditions boosts earnings in other divisions. Others in the market have adjusted forecasts and price target for Macquarie post its profit result.

QR National ((QRN)) was also upgraded, Deutsche Bank moving to a Buy rating from the potential for upside to volumes, which should translate into increased earnings. Further justifying the upgrade in rating was Deutsche's new numbers translate to an increase in price target.

BA-ML also upgraded Santos (STO)) to Buy during the week, this following a review of its model resulting in a revaluation of the group's assets. While the value of the GLNG assets were reduced, this has been offset by increases to the value of the Cooper gas assets.

Expected price tension in gas markets in the coming year should be a further positive and support BA-ML's upgrade. Price target has also been increased modestly. Credit Suisse went the other way, downgrading Santos to Neutral on the back of recent share price outperformance.

A restructuring of debt and a capital raising by Transpacific Industries ((TPI)) has seen both RBS Australia and Credit Suisse upgrade to Buy ratings from Hold previously. The improved balance sheet removes some headwinds in the view of RBS, while management will be able to focus on operational rather than financial issues and this should boost the company's financial performance according to Credit Suisse.

On the downgrades side, OneSteel's ((OST)) revision to earnings guidance on the back of lower iron ore prices saw brokers cut earnings forecasts and price targets significantly. Both Deutsche Bank and RBS Australia downgraded ratings to Sell and Hold respectively, reflecting concerns over debt covenants and ongoing tough market conditions.

While quarterly production for Aquila Resources ((AQA)) was solid, RBS Australia has still downgraded to a Sell rating, this reflecting the broker's concern over the company's ability to raise sufficient cash to meet its development ambitions. This implies a capital raising is a possibility in coming months.

A similarly disappointing production report from Kingsgate ((KCN)) saw both Deutsche and Citi downgrade the stock to Hold from Buy previously, with targets and earnings estimates cut accordingly. A disappointing quarterly from Paladin ((PDN)) was also enough for RBS to downgrade to Hold from Buy, with earnings and price target also reduced.

Australian Pipeline Trust ((APA)) has been downgraded on valuation grounds by Macquarie following recent share price gains, while valuation has seen Credit Suisse make the same shift to Hold from Buy on Australian Worldwide Exploration ((AWE)) while RBS Australia issued a similar downgrade for Consolidated Media ((CMJ)).

UBS also downgraded Mirvac ((MGR)) to a Hold following a review of sector valuations, while Citi resumed coverage on Spotless ((SPT)) with a downgrade to a Neutral rating as tough market conditions have caused the broker to lower earnings expectations. Price target was also reduced.

Ongoing increases to the N5 implant failure rate have Credit Suisse concerned enough about Cochlear ((COH)) to downgrade to an Underperform rating on the stock, with the broker also cutting its price target.

Ongoing tough market conditions are behind Deutsche Bank downgrading to Hold from Buy on CSR ((CSR)), the broker also lowering earnings estimates and price target leading into the company's interim profit result. James Hardie ((JHX)) was downgraded by both Credit Suisse and JP Morgan, in both cases the rating moving to Underperform from Neutral.

Harvey Norman ((HVN)) copped two ratings downgrades to Neutral from Outperform post a 1Q sales result that showed the company has had to sacrifice margins to defend market share. Brokers across the market also lowered earnings estimates and price targets for the stock on the back of the report.

For Iron Road ((IRD)) it was a review of magnetite projects and changes to foreign exchange assumptions that saw RBS Australia downgrade to a Hold rating from Buy, the broker's price target also being reduced.

Tatts ((TTS)), GPT ((GPT)) and Blackmores ((BKL)) were also downgraded during the week, with valuation the key factor in the decisions of brokers to lower ratings for the three stocks, while tough ad market conditions saw forecasts, price target and rating for Ten Network ((TEN)) lowered by RBS.

Earnings and price targets for AMP ((AMP)) were trimmed to reflect weak fund flows in the September quarter, while construction delays have pushed out earnings expectations for Lynas ((LYC)) and this has resulted in Deutsche Bank also trimming its price target for the stock.

A mixed quarterly result has seen earnings estimates and price targets revised for Independence Group ((IGO)), while earnings expectations for Qantas ((QAN)) have come down to account for the impact of the grounding of the group's fleet and the industrial action of recent weeks.

Slightly lower than expected production for OceanaGold ((OGC)) has seen a trimming of earnings estimates and price targets, while it has been a similar story for earnings expectations for Horizon Oil ((HZN)) post its quarterly.

On a more positive note, earnings expectations for Campbell Brothers ((CPB)) have been lifted slightly following two bolt-on acquisitions by the company, while National Australia Bank's ((NAB)) result was enough to see minor increases to earnings estimates. Forecasts for Miclyn Offshore ((MIO)) have also moved higher as the company is to acquire the balance of Samson Marine it doesn't already own.


 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=125,119,129,104,88,144,193,159&h0=73,92,77,118,88,94,106,77&s0=39,15,14,6,26,22,7,13" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 MACQUARIE GROUP LIMITED Neutral Buy BA-Merrill Lynch
2 QR NATIONAL Neutral Buy Deutsche Bank
3 SANTOS LIMITED Neutral Buy BA-Merrill Lynch
4 Transpacific Industries Group Ltd Neutral Buy RBS Australia
Downgrade
5 AQUILA RESOURCES LIMITED Neutral Sell RBS Australia
6 AUSTRALIAN PIPELINE TRUST Buy Neutral Macquarie
7 AUSTRALIAN WORLDWIDE EXPLORATION LIMITED Buy Neutral Credit Suisse
8 COCHLEAR LIMITED Neutral Sell Credit Suisse
9 CONSOLIDATED MEDIA HOLDINGS LIMITED Buy Neutral RBS Australia
10 CSR LIMITED Buy Neutral Deutsche Bank
11 HARVEY NORMAN HOLDINGS LIMITED Buy Neutral Citi
12 HARVEY NORMAN HOLDINGS LIMITED Buy Neutral Credit Suisse
13 IRON ROAD LIMITED Buy Neutral RBS Australia
14 JAMES HARDIE INDUSTRIES N.V. Neutral Sell Credit Suisse
15 KINGSGATE CONSOLIDATED LIMITED Buy Neutral Citi
16 KINGSGATE CONSOLIDATED LIMITED Buy Neutral Deutsche Bank
17 MIRVAC GROUP Buy Neutral UBS
18 ONESTEEL LIMITED Buy Neutral RBS Australia
19 ONESTEEL LIMITED Neutral Sell Deutsche Bank
20 PALADIN ENERGY LTD Buy Neutral RBS Australia
21 SANTOS LIMITED Buy Neutral Credit Suisse
22 SPOTLESS GROUP LIMITED Buy Neutral Citi
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 TPI 17.0% 50.0% 33.0% 6
2 MQG 43.0% 57.0% 14.0% 7
3 AMP 75.0% 88.0% 13.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 KCN 60.0% 20.0% - 40.0% 5
2 BKL 67.0% 33.0% - 34.0% 3
3 OST 86.0% 57.0% - 29.0% 7
4 HVN 50.0% 25.0% - 25.0% 8
5 TTS 57.0% 38.0% - 19.0% 8
6 GPT 50.0% 33.0% - 17.0% 6
7 AWE 86.0% 71.0% - 15.0% 7
8 MGR 86.0% 71.0% - 15.0% 7
9 SIP - 14.0% - 29.0% - 15.0% 7
10 CMJ 57.0% 43.0% - 14.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 TPI 0.842 0.872 3.56% 6
2 MQG 30.611 30.999 1.27% 7
3 CWN 10.263 10.350 0.85% 8
4 SIP 0.583 0.587 0.69% 7
5 MGR 1.369 1.371 0.15% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 OST 2.104 1.619 - 23.05% 7
2 HVN 2.558 2.321 - 9.27% 8
3 KCN 9.444 8.804 - 6.78% 5
4 PDN 2.456 2.333 - 5.01% 7
5 TEN 1.090 1.036 - 4.95% 8
6 AMP 5.244 5.141 - 1.96% 8
7 TTS 2.410 2.363 - 1.95% 8
8 NWS 18.720 18.483 - 1.27% 7
9 COH 55.315 54.840 - 0.86% 8
10 CSR 2.805 2.798 - 0.25% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 IMD 20.467 22.040 7.69% 3
2 AIX 22.300 23.033 3.29% 6
3 DMP 35.250 36.317 3.03% 6
4 FLT 185.338 188.838 1.89% 8
5 NAB 265.138 267.775 0.99% 8
6 MIO 20.904 21.070 0.79% 3
7 NWS 130.886 131.913 0.78% 7
8 CPB 282.029 283.886 0.66% 7
9 CTX 115.817 116.483 0.58% 6
10 BPT 4.040 4.060 0.50% 5

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PDN 2.074 - 1.623 - 178.25% 7
2 LYC 4.475 0.850 - 81.01% 3
3 IGO 24.334 12.820 - 47.32% 5
4 AQP 31.065 16.798 - 45.93% 5
5 OST 24.343 15.114 - 37.91% 7
6 QAN 20.513 15.075 - 26.51% 8
7 AWE 8.857 6.871 - 22.42% 7
8 OGC 18.673 15.449 - 17.27% 3
9 HZN 2.720 2.425 - 10.85% 4
10 TEN 7.963 7.204 - 9.53% 8
 

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

As companies have updated outlook commentary at annual general meetings over the past week, stockbrokers have reacted by making double the number of ratings downgrades to upgrades. Among the eight brokers in the FNArena database eight ratings were upgraded this week against 16 downgrades, meaning total Buy recommendations have fallen to 58.2% from 58.7% previously.

One to enjoy an upgrade in rating was Wotif.com ((WTF)), with BA Merrill Lynch lifting its rating to Neutral from Underperform. The upgrade reflects both minor changes to estimates following updated guidance from management and underperformance by the stock over the past 12 months that has improved the value on offer. The show stopper during the week was biotech Pharmaxis ((PXS)) who finally received product approval from Europe which saw investors jumping back in the shares and stockbrokers (3) lifting their ratings and price targets.

SingTel ((SGT)) was also upgraded to Overweight by JP Morgan, this to account for the expectation Singapore's NBN project will solidify the company's dominant position in that market. Regional asset earnings growth should also be solid and this sees the broker ahead of consensus with its earnings forecasts. Alacer Gold was upgraded too, by two notches to Buy by Credit Suisse.

Southern Cross Media ((SXL)) saw an initiation of coverage with an Outperform rating by Credit Suisse and this has lifted the consensus recommendation for the company. In the view of the broker, while ratings are under pressure and advertising is weaker this appears priced into the stock at current levels.

On the downgrade side Oz Minerals ((OZL)) saw RBS Australia move to a Hold from Buy previously on the back of changes to commodity price assumptions and foreign exchange forecasts. Kingsgate Consolidated ((KCN)) was similarly downgraded to a Hold rating by RBS. Earnings estimates and price targets were also adjusted, the move on OZL by RBS following similar downgrades a week earlier by UBS and Credit Suisse.

Brokers have continued to react to Super Retail's ((SUL)) move to acquire Rebel Sport with Citi the latest to downgrade to Neutral from Buy previously, with associated changes to earnings estimates and price target.

ResMed ((RMD)) was similarly downgraded by Credit Suisse following a Q1 result that showed the group's markets were relatively challenging at present. Earnings estimates and price targets for ResMed across the market have also been revised on the back of the result.

Following an investor day JP Morgan suggests the market may have gotten a little ahead of itself with respect to the outlook for WorleyParsons ((WOR)), so the broker downgraded to Underweight from Neutral. The change in rating has been accompanied by adjustments to earnings estimates and price target.

Caltex ((CTX)) has also received a few changes to ratings in recent sessions, both BA Merrill Lynch and Citi downgrading to a Neutral rating on valuation grounds while Credit Suisse has upgraded to a Neutral rating on the back of an increase in price target on news of a rationalisation of operations at the Kurnell refinery.

Valuation has come into play for Computershare ((CPU)) as adjustments to RBS Australia's model and target have been enough to prompt a downgrade to a Hold rating, while Credit Suisse has done the same with Wesfarmers ((WES)). Relative pricing grounds have seen UBS cut its rating on Charter Hall Retail ((CQR)) to Hold.

Some minor changes to its model have caused RBS to lift earnings and price target for Adelaide Brighton ((ABC)), while BA-ML has gone the other way in cutting forecasts and target for Insurance Australia Group ((IAG)) given a tough market for insurance margins and some capital issues. 

Leading into next week's result Macquarie has cut its target for CSR ((CSR)) on the back of some adjustments to estimates, which follows a similar move by UBS earlier this month.

Earnings forecasts have been lifted for Regis Resources ((RRL)) following a solid quarter of production, while estimates for Santos ((STO)) and Woodside ((WPL)) have similarly increased post respective production reports.

Still strong exploration activity levels have prompted RBS to lift forecasts for Imdex ((IMD)), which has also generated an increase in price target. The changes follow similar adjustments made by BA-ML and Deutsche Bank. 

Further progress at Maules Creek has seen RBS lift earnings estimates for Aston ((AZT)), while a solid quarterly report from Webjet ((WEB)) has been enough for BA-ML and UBS to lift earnings estimates and price targets.

Changes to earnings estimates for Panoramic ((PAN)) are more a reflection of changes to expectations for commodity prices and foreign exchange rates than operational issues, but weaker production and sales have been behind cuts to expectations for Gloucester Coal ((GCL)).

Forecasts for Macquarie Atlas ((MQA)) have come down post a slightly weaker Q3 traffic result, while weaker nickel prices are impacting on earnings estimates for Western Areas ((WSA)). On the back of a reasonable quarterly production report there have been modest changes to estimates for Atlas Iron ((AGO)), while the announcement of a capital raising has resulted in adjustments to estimates for Transpacific Industries ((TPI)). 

Tough operating conditions have seen forecasts lowered for GWA International ((GWA)), while changed commodity price and forex assumptions have prompted a lowering of earnings estimates for BHP Billiton ((BHP)).

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=123,122,130,105,88,146,196,160&h0=75,90,77,118,88,92,104,76&s0=39,15,12,5,26,21,6,13" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 ALACER GOLD CORP Sell Buy Credit Suisse
2 Pharmaxis Ltd Neutral Buy RBS Australia
3 Pharmaxis Ltd Neutral Buy BA-Merrill Lynch
4 Pharmaxis Ltd Neutral Buy Credit Suisse
5 SINGAPORE TELECOMMUNICATIONS LIMITED Neutral Buy JP Morgan
6 WOTIF.COM HOLDINGS LIMITED Sell Neutral BA-Merrill Lynch
Downgrade
7 ADELAIDE BRIGHTON LIMITED Buy Neutral RBS Australia
8 CALTEX AUSTRALIA LIMITED Buy Neutral BA-Merrill Lynch
9 CHARTER HALL RETAIL REIT Buy Neutral UBS
10 CSG LIMITED Buy Neutral RBS Australia
11 INSURANCE AUSTRALIA GROUP LIMITED Buy Neutral BA-Merrill Lynch
12 KINGSGATE CONSOLIDATED LIMITED Buy Neutral RBS Australia
13 OZ MINERALS LIMITED Buy Neutral RBS Australia
14 PRIMARY HEALTH CARE LIMITED Buy Neutral Credit Suisse
15 RESMED INC Buy Neutral Credit Suisse
16 WESFARMERS LIMITED Buy Neutral Credit Suisse
17 WESTERN AREAS NL Buy Neutral UBS
18 WESTFIELD RETAIL TRUST Buy Neutral Deutsche Bank
19 WORLEYPARSONS LIMITED Neutral Sell JP Morgan
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 RRL 33.0% 67.0% 34.0% 3
2 WTF 25.0% 38.0% 13.0% 8
3 SGT 40.0% 50.0% 10.0% 6
4 SXL 71.0% 75.0% 4.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 OZL 88.0% 50.0% - 38.0% 8
2 SUL 67.0% 33.0% - 34.0% 6
3 RMD 63.0% 38.0% - 25.0% 8
4 KCN 80.0% 60.0% - 20.0% 5
5 WOR 33.0% 14.0% - 19.0% 7
6 CTX 33.0% 17.0% - 16.0% 6
7 CPU 29.0% 14.0% - 15.0% 7
8 CQR 29.0% 14.0% - 15.0% 7
9 WRT 100.0% 86.0% - 14.0% 7
10 WES 63.0% 50.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 ABC 3.343 3.348 0.15% 8
2 CQR 3.317 3.321 0.12% 7
3 SVW 9.314 9.318 0.04% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 RMD 3.527 3.193 - 9.47% 8
2 OZL 13.729 12.919 - 5.90% 8
3 SUL 7.155 6.756 - 5.58% 6
4 KCN 9.658 9.444 - 2.22% 5
5 IAG 3.508 3.435 - 2.08% 8
6 WTF 4.425 4.348 - 1.74% 8
7 RRL 3.287 3.257 - 0.91% 3
8 WES 33.108 32.941 - 0.50% 8
9 CSR 2.818 2.805 - 0.46% 8
10 WOR 28.862 28.769 - 0.32% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 MAP 6.187 7.259 17.33% 6
2 RRL 13.607 15.867 16.61% 3
3 STO 56.425 61.125 8.33% 8
4 WPL 205.928 216.457 5.11% 8
5 OSH 14.479 14.902 2.92% 8
6 MQG 261.386 268.214 2.61% 7
7 IMD 20.133 20.467 1.66% 3
8 AZT 24.900 25.275 1.51% 4
9 WEB 16.900 17.125 1.33% 4
10 MMS 72.567 73.333 1.06% 3

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PAN 16.450 11.475 - 30.24% 4
2 GCL 50.200 41.220 - 17.89% 5
3 OZL 113.513 94.029 - 17.16% 8
4 MQA 9.683 8.433 - 12.91% 6
5 WSA 53.667 48.700 - 9.26% 6
6 AGO 34.850 31.638 - 9.22% 8
7 TPI 7.233 6.567 - 9.21% 6
8 GWA 19.583 18.117 - 7.49% 6
9 GRR 10.900 10.250 - 5.96% 4
10 BHP 447.715 421.154 - 5.93% 8
 

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article 3 months old

Too Early To Get Excited About Ten Network

- Ten Network's full year result viewed as disappointing
- Earnings estimates down as ad market conditions remain soft
- Turnaround will come but may take a year
- Stockbroker opinions remain divided


By Chris Shaw

Having previously guided on full year earnings, yesterday's report of full year EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) of $173 million by Ten Network was not a great surprise for the market.

The result was still viewed as disappointing though, Deutsche Bank attributing the weak result to the adverse impact of a change in strategic direction implemented by previous management team and further deterioration in ad market conditions.

The poor decisions of the previous management was reflected in an increase in the previously announced restructuring charge of $46.1 million to $85.4 million. The increase is due primarily to further provisions for sports contracts.

On the back of the result, and given ongoing weakness in ad market conditions, stockbrokers have in general lowered earnings estimates for Ten. As examples, Deutsche has lowered its FY12 earnings estimate by 4.3%, while JP Morgan's numbers come down by 11% and BA Merrill Lynch by 19% for the same period.

RBS Australia's estimates have been reduced by a more significant 33% given an expected decline in TV revenue and a small loss of market share, while Citi has gone the other way and lifted forecasts for FY12 by around 5%. 

Consensus earnings per share (EPS) estimates for Ten Network according to the FNArena database now stand at 7.2c for FY12 and 8.6c for FY13.

With a number of bad contracts being written down, FY11 was effectively a year of restructuring for Ten Network. This leads Citi to suggest it is now a waiting game with respect to when audiences may improve and the ad market recover.

As Citi points out, there is upside risk to earnings at present from any broad-based recovery in Ten's markets, but such an outcome appears too early to call at present. Citi suggests the earliest any sign of progress is likely to be seen is February of next year, when new programming starts.

BA-ML agrees, taking the view gains in ad market share for Ten are more likely in 12 months time as Ten is currently holding back on some programming for next year, new shows tend to take some time to settle and advertisers may choose to wait for some evidence of ratings recovering before committing.

For both Citi and BA-ML this means a Neutral rating for Ten Network is appropriate, but there are alternative views. JP Morgan and UBS both retain Buy ratings on Ten, the former given good cost control and expectations of an eventual improvement in market conditions and the latter due to longer-term value at current levels.

In contrast, RBS Australia has downgraded to a Sell rating from Hold previously, the move also being something of a valuation call. The cuts to RBS's earnings estimates mean valuation for Ten falls to $0.90 from $1.06, while a further discount for ongoing market share risks is factored in when setting a price target. RBS has reduced its target to $0.81 from $0.95, which suggests the stock is expensive at current levels.

Overall the FNArena database shows Ten Network is rated as Buy three times, Hold four times and Sell once, with a consensus price target of $1.03. This is down from $1.09 prior to the full year profit result. Targets range from RBS at $0.81 to Credit Suisse at $1.34.

Shares in Ten Network have moved inside a trading range over the past year of $0.80 to $1.66. Friday's price implies upside of around 14% to the consensus target in the FNArena database.
 

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

For the second week in a row downgrades from the eight brokers in the FNArena database have outnumbered upgrades, this week by a score of 12 to three. This brings total Buy recommendations to 58.7%, down from last week's 59.3%.

Among the few receiving an upgrade this week were Cardno ((CDD)), Macquarie lifting its rating to Outperform from Neutral on the back of the company announcing the acquisition of TEC in the US. The new assets are seen as a good fit with existing operations and should boost earnings.

Macquarie also upgraded fund manager Henderson Group ((HGG)) to Neutral from Underperform on valuation grounds. Looking through short-term market headwinds suggest the stock is attractive even post some cuts to earnings estimates, while a 6% dividend yield is also viewed positively by the broker.

Toll Holdings ((TOL)) was also upgraded by Macquarie to Neutral from Underperform, this change also reflecting an improved valuation for the stock at current levels. A review of its model saw Macquarie make minor changes to earnings forecasts and price target.

On the resources side, an initiation of coverage by UBS with a Buy rating on Atlas Iron ((AGO)) has lifted overall ratings for the stock, while bringing about a minor reduction in consensus price target given UBS set a lower target than others in the FNArena database.

Among the companies where ratings were downgraded was Super Retail Group ((SUL)), Citi, BA Merrill Lynch and Credit Suisse all downgrading to Neutral ratings from Buy previously on the back of the purchase of the Rebel Sport assets.

The general view is that the assets being acquired are not top quality and a full price is being paid, while the magnitude of the deal also changes Super Retail's risk profile going forward. Price targets have thus been reduced on the back of the acquisition, while earnings estimates have been adjusted lower to reflect earnings dilution from a share issue to pay for part of the purchase.

While a soft retail environment won't help Super Cheap succeed with the Rebel Sport purchase, it has also seen Deutsche Bank downgrade to a Hold rating on Carsales.com ((CRZ)), the broker also lowering earnings estimates as well as its price target.

It is a similar story for the likes of Computershare ((CPU)) with RBS downgrading to a Hold rating on valuation grounds given tough operating conditions, Credit Suisse downgrading on Aristocrat Leisure ((ALL)) to an Underperform rating and Macquarie downgrading to a Neutral rating on Ten Network ((TEN)) - all on the same basis.

Tough conditions saw Fletcher Building ((FBU)) lower earnings guidance and brokers responded by cutting forecasts and price targets accordingly. Only Macquarie saw fit to downgrade to a Neutral rating from Outperform, the broker arguing the tough environment makes outperformance for the shares unlikely in the shorter-term. 

Oz Minerals ((OZL)) also copped a downgrade to a Neutral rating from Credit Suisse post a quarterly production report that disappointed on the gold side, while Deutsche Bank downgraded Energy Resources of Australia (ERA) to Hold on the back of an unexpected rights issue. Rio Tinto ((RIO)) is underwriting the capital raising and is likely to boost its equity ownership past 80% as a result.

Changes in price targets were largely tied to changes in earnings estimates for the industrial plays such as Cardno and Toll Holdings, while for resources stocks such as ERA, Oz Minerals and PanAust ((PNA)) the changes tended to reflect either production reports falling short of expectations or adjustments to commodity price assumptions by brokers. 

The consensus target for Jetset Travelworld ((JET)) has fallen as UBS's initiation added a lower target than those already in the market.

Changes to earnings forecasts for Macquarie Airports ((MAP)) were modest following September traffic data, while a better performance on costs contributed to increases to earnings forecasts for Fortescue Metals ((FMG)). 

Estimates for Caltex ((CTX)) moved slightly higher as broker models were updated for the latest refiner margins, while better volumes and cost performance saw estimates lifted for mineral sands play Iluka ((ILU)). 

Cochlear (COH)) continues to struggle from an earnings perspective given uncertainty with respect to total costs relating to its hearing implant recall, while a slower than expected ramp-up of some operations has led to Macquarie trimming estimates for Beach Energy ((BPT)). 

For Bank of Queensland ((BOQ)) full year earnings were a little lower than expected and so estimates have been trimmed, the changes also impacting on price targets for brokers in the database. BHP Billiton ((BHP)) and Customers ((CUS)) also experienced minor changes to earnings estimates over the week.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 CARDNO LIMITED Neutral Buy Macquarie
2 MINCOR RESOURCES NL Sell Neutral UBS
3 SINGAPORE TELECOMMUNICATIONS LIMITED Neutral Buy JP Morgan
4 TOLL HOLDINGS LIMITED Sell Neutral Macquarie
Downgrade
5 CARSALES.COM LIMITED Buy Neutral Deutsche Bank
6 COMPUTERSHARE LIMITED Buy Neutral RBS Australia
7 CSG LIMITED Buy Neutral RBS Australia
8 IRESS MARKET TECHNOLOGY LIMITED Buy Neutral Credit Suisse
9 OZ MINERALS LIMITED Buy Neutral UBS
10 OZ MINERALS LIMITED Buy Neutral Credit Suisse
11 PRIMARY HEALTH CARE LIMITED Buy Neutral Credit Suisse
12 SUPER RETAIL GROUP LIMITED Buy Neutral Citi
13 SUPER RETAIL GROUP LIMITED Buy Neutral BA-Merrill Lynch
14 SUPER RETAIL GROUP LIMITED Buy Neutral Credit Suisse
15 TEN NETWORK HOLDINGS LIMITED Buy Neutral Macquarie
16 TREASURY WINE ESTATES LIMITED Buy Neutral Deutsche Bank
17 WESFARMERS LIMITED Buy Neutral Credit Suisse
18 WESTERN AREAS NL Buy Neutral UBS
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CDD 33.0% 67.0% 34.0% 3
2 TOL 25.0% 38.0% 13.0% 8
3 SGT 40.0% 50.0% 10.0% 6
4 TTS 50.0% 57.0% 7.0% 7
5 AGO 71.0% 75.0% 4.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 SUL 100.0% 33.0% - 67.0% 6
2 OZL 88.0% 63.0% - 25.0% 8
3 CRZ 100.0% 83.0% - 17.0% 6
4 JET 67.0% 50.0% - 17.0% 4
5 CPU 29.0% 14.0% - 15.0% 7
6 TWE - 14.0% - 29.0% - 15.0% 7
7 WES 63.0% 50.0% - 13.0% 8
8 TEN 50.0% 38.0% - 12.0% 8
9 SVW 60.0% 50.0% - 10.0% 4
10 FGL - 13.0% - 14.0% - 1.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 TWE 3.376 3.390 0.41% 7
2 TOL 5.254 5.275 0.40% 8
3 CDD 6.190 6.203 0.21% 3
4 SVW 9.314 9.318 0.04% 4
5 TTS 2.409 2.410 0.04% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 JET 1.050 0.988 - 5.90% 4
2 SUL 7.297 6.996 - 4.12% 6
3 OZL 13.641 13.169 - 3.46% 8
4 TEN 1.105 1.090 - 1.36% 8
5 WES 33.108 32.941 - 0.50% 8
6 CRZ 5.477 5.452 - 0.46% 6
7 CPU 8.550 8.526 - 0.28% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PDN 1.753 2.075 18.37% 7
2 MAP 6.187 7.259 17.33% 6
3 GBG 1.014 1.157 14.10% 6
4 STO 56.425 61.125 8.33% 8
5 WPL 204.950 216.917 5.84% 8
6 FMG 66.736 70.301 5.34% 8
7 GNM 6.600 6.933 5.05% 3
8 GCL 47.800 50.200 5.02% 5
9 NCM 217.229 222.250 2.31% 8
10 AWC 5.777 5.897 2.08% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PAN 16.450 11.475 - 30.24% 4
2 OZL 113.513 95.200 - 16.13% 8
3 COH 255.638 220.275 - 13.83% 8
4 MQA 9.683 8.433 - 12.91% 6
5 WSA 53.667 48.700 - 9.26% 6
6 PRU 25.433 23.600 - 7.21% 6
7 GWA 19.583 18.250 - 6.81% 6
8 BHP 446.994 426.732 - 4.53% 8
9 CUS 12.740 12.200 - 4.24% 5
10 GUD 78.100 74.983 - 3.99% 6
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Weekly Broker Wrap: Weakness Follows Through

- Nickel forecasts increased
- Oil forecasts decreased
- Capex delays
- Iron ore forecasts increased
- Media downgrades


By Greg Peel

Even if this weekend does bring a comprehensive plan that all and sundry agree will end the turmoil in Europe, it doesn't necessarily mean we can all say “Thank God that's over” and assume no damage has been done. Whatever the plan for Europe, there is little disagreement the outlook for European economic growth from here is flat to negative as accompanying fiscal measures impede economic activity.

US economic data have been encouragingly more positive lately, which means the world's largest economy may not fall back into recession after all. Growth from here will nevertheless remain sluggish in the face of persistently high unemployment. Europe remains an important export market for the US, albeit the real growth is in emerging markets. But Europe is China's biggest export customer, so falling demand from Europe can only have a trickle-down effect all over the rest of the globe. This includes Australia, where reduced demand for Chinese exports will weigh on Chinese demand for resources, notwithstanding any restocking phase.

It is with this in mind that analysts continue to rein in their forecasts for commodity prices, currencies and stock indices. As noted in last week's Broker Wrap, analysts do not move forecasts every day but rather wait until substantial spot price shifts and economic growth forecast changes force such adjustments. Hence the downgrading rolls on.

Before we get to last week's round of downgrades, we can start on a positive note. Credit Suisse's base metal analysts last week cited a number of reasons why they see stronger nickel prices from early 2012.

The cost of nickel pig iron production in China has now blown out to the point less efficient smelters must either shut down or start cutting back on production, Credit Suisse suggests, before they fall into negative cashflow. Nickel project expansions outside of China have yet again fallen short of targets, and many are struggling with new, technically challenging production techniques. Overcapacity for stainless steel production in China remains an issue, but excessive production in 2010 has been countered in 2011 such that production now better reflects actual demand.

In light of this view, CS has lifted its average nickel price forecasts (all US$/lb) to 9.75 (up 5%) in 2012, 10.60 (18%) in 2013 and 10.90 (28%) in 2014 despite reducing its previous 2011 forecast to 8.60 (-15%). The current spot price is 8.54. The result is a reduction in FY12 forecast earnings for Australian nickel producers of an average 14%, offset by an average 50% increase to FY13-14 forecasts. The net result is that valuations are raised 24%.

CS further notes nickel producer share prices have led the recent stock pullback, falling by a much greater degree than spot nickel prices. The analysts thus retain their Outperform ratings on PanAust ((PNA)) and Mirabela ((MBN)), and have lifted Western Areas ((WSA)) to Outperform.

That's where the good news ends for now.

Much has been made of the large expansion plans and capital expenditure intentions of the Australian resources sector in the years ahead, which have not only underpinned expectations of GDP growth but have, until last month, been the main driver of RBA hawkishness. However experience suggests that when uncertainty creeps into the global economy, resource companies play it safe by delaying such expenditure. It's not such a big deal for mining companies to postpone projects, but it does impact on the companies that rely on those projects for annual revenues – the engineering and construction contractors.

JP Morgan regularly surveys Australian contractors to gauge the state of the market through the broker's Contractors Expectations Index. That index is currently negative, the analysts report, albeit larger contractors have begun to become more positive than smaller contractors. The LNG, iron ore and coal sectors still offer a wealth of work ahead, but current economic conditions and strong cost headwinds means project delays which are pushing JP Morgan's FY12 earnings expectations out to FY13.

The bottom line is that of the six contractors in the broker's sector coverage universe, only UGL ((UGL)) scores an Overweight rating. JPM has all of Downer ((DOW)), Leighton ((LEI)), Lend Lease ((LLC)) and Transfield ((TSE)) on Neutral, while the previously high-flying Monadelphous ((MND)) scores an Underweight.

JP Morgan analysts have also been busy reassessing their oil price and Aussie dollar assumptions and thus their oil & gas sector earnings forecasts. The analysts' forecast average prices for Brent crude across 2012-13 have come down 7% while their AUD forecast falls 2% in 2012 and rises 2% in 2013.

Resultant forecast earnings downgrades in the sector are significant, while resultant valuation reductions are more modest at 1-5%. Despite the downgrades JPM believes the sector is undervalued and among the large caps prefers Santos ((STO)) which rates an Overweight. JP Morgan's ratings are sector specific, and the offset is an Underweight rating for Woodside ((WPL)).

Macquarie's oil price assumption cuts have been more severe, albeit it all depends on from where you start. The Macquarie analysts have reduced their Brent crude forecasts by 19% in both 2012 and 2013 based on a weaker outlook for developed economies into 2012. Equivalent forecast earnings downgrades for the sector follow.

Macquarie nevertheless retains a positive longer term global view, noting that spare crude production capacity remains tight at only 5% with a great reliance on Saudi Arabia. Weaker demand in developed markets will be overcome by rising demand in emerging markets, the analysts believe.

Unlike JP Morgan, Macquarie rates all its stocks in its coverage universe against the index rather than the relevant sector. Given the analysts' positive longer term view and recent share price weakness, only one of the fifteen oil & gas producers under coverage does not score an Outperform rating and Nexus ((NXS)), rated Neutral, has its own unique problems. Preference, however, goes to Santos and Oil Search ((OSH)).

While Macquarie's resource sector analysts have been busy cutting forecasts, Macquarie's equity strategists have also been in on the act. Following on from Goldman Sachs' ASX 200 forecast reductions the week before, Macquarie has brought down its twelve-month target to 4559 (last close 4205). This compares to Goldmans' new end-2012 target of 4725. Macquarie's forecast implies a total shareholder return of 14.0% of which 5.7% represents dividend yield.

Macquarie has also been busy reassessing its high conviction calls on individual stocks, which it calls its Marquee Ideas. Three changes occurred last week, with Virgin Blue ((VBA)) going in in place of Echo Entertainment ((EGP)).

The prompt for Virgin's inclusion is draft approval from the ACCC for the carrier's planned alliance with Singapore Airlines which the analysts see as de-risking Virgin's earnings recovery. Meanwhile Echo's inclusion had been based on the relaunch of Star City casino and that has now occurred. Macquarie has also removed New Zealand's Sky City Entertainment ((SKC)).

Expectations of slower global economic growth have not just impacted on Australia's resources sector, but also on its media sector. Last week this Wrap noted reduced GDP forecasts for Australia from Goldman Sachs and the GS media analysts have translated the downgrades into lower expectations for advertising growth, to the point where they now expect an “ad market recession” in FY12.

The end result is that Ten Network ((TEN)) has been downgraded to Hold from Buy to join Hold ratings for Fairfax ((FXJ)) and Seven West Media ((SWM)). The analysts' forecast for Australian unemployment to reach 6.0% by mid next year means Seek ((SEK)) attracts a Hold rating, while a weak New Zealand economy contributes to APN News & Media's ((APN)) downgrade to Sell.

Having began on a positive note, let's end on one as well.

UBS analysts have also been reviewing their commodity price forecasts, last week marking to market for September quarter. While clearly this involves some reductions, the analysts' most material forecast change is for iron ore. UBS has lifted its 2012-14 iron ore forecast prices by 12-14% to reflect declining exports out of India, and this translates into 5-30% forecast earnings upgrades for Australia's iron ore producers. Earnings also get a bit of a kick from a trimming of the UBS AUD assumption.

The broker's pure play preferences are Fortescue Metals ((FMG)) and Gindalbie ((GBG)), while in the diversifieds UBS is not Robinson Crusoe in preferring Rio Tinto ((RIO)) over BHP Billiton ((BHP)).

While many commentators are now becoming nervous about the extent and speed of last week's global stock market rally, which has featured short covering and light volume, UBS believes markets had become too oversold and that the rally can run further. The UBS strategists are swinging away from defensive stocks, which have outperformed in the sell-off, and suggest the resources sector and its related service sector are the best bets.

Domestic cyclicals are also showing signs of bottoming, the strategists believe, though structural headwinds persist. Hence UBS remains relatively Neutral on such sectors but retains a “small” Overweight on banks with the headwind of subdued credit growth.
 

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article 3 months old

Weekly Broker Wrap: Commodity Forecasts Cut

- Europe forces reductions in global growth assumptions
- Cuts to base and bulk metal price forecasts follow
- Industrial and financial sectors also hit
- Gold remains a winner


By Greg Peel

The Australian stock market began on a weak note last week, carrying on the August-September theme of European uncertainty driving fear and widespread reductions to global growth forecasts. However an apparent newfound agreement among leaders that they must act swiftly to recapitalise European banks ahead of a more severe restructuring (or “orderly default”) of Greek sovereign debt sparked very solid rallies through to the end of the week.

There is little disagreement that Europe holds the key to market direction from here. Forecasts are largely binary in that continued dithering equals bad and definitive action equals good. However economists around the world have cut global growth forecasts on the assumption European growth will be difficult either way. Thereafter, the US continues to walk the tight rope between low growth and recession, while it remains difficult to find solid agreement on just how China will fare.

The problem for analysts is that they don't like to move forecasts around too often. Given changes in commodity and currency price forecasts can magnify into substantial changes in resource stock valuations, shifting price assumptions too often simply leads to confusion. Better to be more resolute about forecasts for periods of a quarter or more such that valuations can come with some level of conviction. But when prices move significantly analysts are reluctantly forced into action. Last week saw analysts bowing to weak market pressures and taking a knife to forecasts, albeit by week's end the mood had brightened with the potential for Europe to finally get its act together now in the sights.

The RBS commodity analysts in Hong Kong decided to reassess commodity price forecasts over a week ago, reverting to a bear case scenario in which both Europe and the US fall into recession. Under this scenario, RBS sees the weak commodity price levels of September carry through the fourth quarter and into 2012. The Hong Kong team acknowledges, however, their global commodity analyst colleagues are more “constructive” on the 2012 outlook.

RBS Hong Kong believes price to book value ratios are more relevant in a cyclical downturn than either PE or enterprise value measurements. Applying the PB ratios reached in the 2008 trough suggests the potential for significant valuation downside for global steel and base metal companies. Coal companies on the other hand have more stable earnings streams.

Credit Suisse also decided early last week it was time to address commodity price forecasts and mimicked the IMF in suggesting forecasts had entered “a dangerous new phase”. Summarising their views ahead of what we might call the “light at the end of the tunnel” of European agreement mid-week, the analysts suggested the short-term risks remain firmly to the downside and prices would remain highly volatile. Once the panic subsides, nevertheless, the trick will be to assess just how much longer term damage has been done to the real economy.

Clearly any failure to resolve the European situation would mean further weakness, but Credit Suisse is happy to note that while eurozone economic data have weakened considerably, the same is not true in China or even in the US. Assuming a European resolution is not far off, the analysts are looking for commodity prices to trough in the fourth quarter before resuming their decade-long upward trend in 2012.

Importantly, CS suggests China will take the opportunity of much weaker commodity prices, particularly for industrial metals, to undertake aggressive inventory restocking once the fear in the North Atlantic subsides.

BA-Merrill Lynch also believes the December quarter will provide the nadir for the current commodity price downturn. Merrills has held a positive view on commodities since 2009 but has been forced to cut price assumptions three times since March this year, with last week prompting the third cut. However, the analysts believe that as the dust settles in Europe the fundamental conditions which existed post-GFC will reemerge to set the rally in train once more.

Low central bank cash rates and quantitative easing in developed markets have meant negative real interest rates, as was the case post-GFC. Emerging markets such as China have the capacity to also cut rates if necessary and some, including Brazil, already have. As some form of rescue package is finally engineered for Europe, Merrills sees an attractive entry point into resource sector stocks, with lower commodity currency (eg AUD) levels attracting near term investment flows.

On the base metal front, and remembering that commodity analysts like to keep their price forecasts mostly below spot for industrial commodities, Merrills sees a copper price of US$2.40/lb as the trough this quarter before rebound potential to US$3.80/lb in 2012. The current spot price is US$3.30/lb. In copper the analysts like OZ Minerals ((OZL) and PanAust ((PNA)).

Coal and iron prices will also continue to come under pressure but Merrills is expecting 7% growth in Chinese steel production in 2012. This should see a floor in the iron ore price at the US$140-150/t level, the analysts suggest, with Chinese cost inflation providing a backstop. In iron ore Merrills likes Fortescue Metals ((FMG)) and Atlas Iron ((AGO)).

Meanwhile Merrills has trimmed earnings forecasts for BHP Billiton ((BHP)) and Rio Tinto ((RIO)) by 10% and dropped base metal miner price targets between 10% and 20%.

Goldman Sachs is now assuming a recession in Europe and weaker growth elsewhere around the world, including in the US, China and India. Goldmans' global GDP growth forecasts have been cut to 3.8% from 3.9% in 2011 and to 3.5% from 4.2% in 2012. For Australia, GS now sees 2011 growth of 1.5%, down from 1.7%, and 3.0% growth in 2012, down from 3.5%. The analysts have trimmed their Aussie dollar assumptions accordingly.

Global growth assumptions translate into oil price assumptions, and here GS has cut its fourth quarter 2011 Brent crude price forecast to US$110/bbl from US$125/bbl and its 2012 forecast to US$120/bbl from US$130/bbl. The analysts note however that non-OPEC oil supply has disappointed again in 2011 while global demand has proved more robust than previously assumed. OPEC producers have less than one million barrels per day of excess capacity and demand should be seasonally stronger in the fourth quarter, so Goldmans suggests Libyan production needs to be reestablished quickly.

For Australian oil and gas producers, Goldman Sachs notes reductions in price forecasts are largely offset by reductions in currency forecasts. The analysts are attracted to Woodside's ((WPL)) heavily discounted valuation and are also keen on attractive prices for Santos ((STO)) and Origin Energy ((ORG)), however early execution risks for the latter two's CSG LNG projects keeps the broker on Neutral for now. On the other hand, Oil Search ((OSH)) boasts the most attractive LNG exposure in the region, Goldmans suggests.

Refining margins in Asia have remained strong which should have been good news for Caltex ((CTX)) this year, were it not for the headwinds of the strong Aussie. Thus with Aussie forecasts now reduced, Goldmans sees a brighter outlook for the local refiner in 2012.

Goldman Sachs' equity strategists have also been in on the act, reducing forecast earnings for both resources and industrial stocks in Australia and also reducing PE multiples to reflect weaker sentiment. A cynic might thus suggest the strategists have thus reduced their ASX 200 price forecasts yet again in order to catch up to the market.

GS has now set a December quarter target for the ASX 200 of 4075, down from a previous target of 4450. By mid next year the analysts see 4400, down from 4800, and by end next year 4725, down from 5000. That implies a 22% return over 12 months including 4% of yield.

Lower global growth forecasts and weaker markets do not only impact upon resource sector stocks. Goldman Sachs put New Corp ((NWS)) on its Conviction List given its recent phone hacking-related price plunge, but notes that gap has now reduced materially. Fallout from weaker global growth will include weaker advertising demand, so Goldmans has now taken News off its Conviction List.

In the first half of 2011 we spent our time wondering to what extent excessive disaster claims would have on Australia's insurers. In the second half we have had to worry about impact the insurers will suffer on the investments needed to pay claims, given significantly weaker markets. This week Credit Suisse warned of lower earnings and dividend cuts in the sector. (See Weak Market Hurts Australian Insurers).

Returning to our hopes that a resolution in Europe may be edging nearer, one might be forgiven for assuming a victim of any good news would be the gold price. Clearly gold has been carrying a premium in its role as safe haven against financial disaster. Yet for most analysts the opposite is actually true. European debt restructuring basically suggests quantitative easing in some form or another, and if you like we can be more basic and say it means money printing.

This means global monetary inflation, and that means expectations of a higher gold price. Hence analysts spent this week revising up their gold price forecasts – some quite substantially. (See Gold Still Shines).
 

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