FNArena continues to register more recommendation upgrades than downgrades for individual stocks.
However, when it comes to changes to price targets/valuations and profit estimates, the balance remains firmly in the negative. This should come as no surprise as lower prices are still filtering through stockbroker forecasts.
In the good books
Beach Energy (BPT) was upgraded to Outperform from Neutral by Credit Suisse. A new analyst has taken over Cooper Basin stocks and preferences have been updated. Beach Energy appears to have fewer clear growth options outside the SACB joint venture but the broker envisages value at current levels.
Crown Resorts (CWN) was upgraded to Neutral from Underperform by Credit Suisse. The broker suspects a “cost wave” will engulf Macau operators over the next three years. Around 10% mass market revenue growth is required to maintain industry earnings. Having downgraded Crown on a reduction in expected associate income, the broker is upgrading the stock back to Neutral after share price weakness.
Henderson Group (HGG) was upgraded to Buy from Neutral by Citi. Henderson is now at an attractive entry price in the broker’s view. The investment performance in the September quarter was consistent. The company is predicting the December quarter will be tougher but, even so, the broker notes flows are still positive and the company has demonstrated its ability to outperform.
In the not-so-good books
CSR (CSR) was downgraded to Neutral from Outperform by Credit Suisse and to Sell from Neutral by Citi. Despite the strong first half, Credit Suisse downgrades to Neutral from Outperform. There are reasons to remain constructive but the broker believes these are factored into the share price and would be a buyer of the stock on any material pull back. Citi considers that there is short-term optimism reflected in the share price, which cannot be justified on fundamentals. As leading indicators of residential activity appear to be peaking and aluminium earnings face pressure from the second half of FY17, the broker concludes the downside risk weighs more heavily.
Origin Energy (ORG) was downgraded to Underperform from Neutral by Credit Suisse. Credit Suisse had called for more clarity on capex ahead of the APLNG site tour and acknowledges some has been provided, with guidance that the cash call would be a net $3 billion in FY15. This does not end the confusion but the broker believes, be it project or non-project, more capex means value lost.
Senex Energy (SXY) was downgraded to Neutral from Outperform by Credit Suisse. Credit Suisse believes much of the growth is priced in for Senex Energy and while it has the largest acreage and gas resources, commerciality is uncertain.
Transfield Services (TSE) was downgraded to Reduce from Hold by CIMB Securities. The upgrade to FY15 earnings guidance was not a surprise to CIMB and it upgrades estimates accordingly. Still, CIMB believes the primary driver of the share price in the near term will be the prospective bid from Ferrovial. The broker considers the risk of a further bid eventuating is diminishing and the prospect of the original bid being withdrawn is increasing. CIMB has therefore withdrawn the bid premium from valuation.
UGL (UGL) was downgraded to Hold from Buy by Deutsche Bank. The company has announced a cost blow-out on the Ichthys power project and there is a risk of write downs with the 50:50 joint venture partner announcing a US$85 million provision. Deutsche Bank has become more cautious on potential issues with other contracts and believes management will be unlikely to regain investor confidence within a 12-month horizon.
Earnings Forecast
FNArena tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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