Iluka Resources (ILU) upgraded to Buy from Neutral by Citi. Titanium oxide demand is expected to rise in 2014 after two years of destocking, but increased Chinese pigment production is expected to cap prices. The broker suggests this “arm wrestle” will mean Iluka will likely range-trade between $9-12. On the basis of the recent share price correction, the broker nevertheless upgrades to Buy. Target rises to $10.70 from $10.50.

Independence Group (IGO) upgraded to Buy from Hold by Deutsche Bank. The company has announced a revised production target at Tropicana, downgrading it to 90-100,000 ozs from 120,000 ozs. Deutsche Bank is disappointed the ramp up will not be as rapid but this does not change the quality of the asset. The rating is upgraded to Buy from Hold because of the recent fall in the share price and attractive earnings growth. The price target is reduced to $4.05 from $4.15.

Programmed Maintenance (PRG) upgraded to Outperform from Neutral by Macquarie. The broker believes the outlook for the stock is solid after viewing the first half result and has raised the recommendation to Outperform from Neutral. Macquarie thinks, with an undemanding valuation and 40% of earnings from the oil and gas business, there is scope for the good performance to continue. The price target is raised to $3.34 from $2.20.

SEEK (SEK) upgraded to Neutral from Underweight by JP Morgan. SEEK has upgraded guidance at the AGM, expecting earnings to be slightly ahead of FY13 as opposed to being moderately below. Hence JP Morgan has upgraded growth forecasts. SEEK has also announced the potential floating of IDP, in which it has a 50% stake. The broker thinks SEEK has shown significant resilience in the current market, with leverage to improvement in employment conditions. The rating is upgraded to Neutral from Underweight and the price target is raised to $11.89 from $9.17.

Specialty Fashion (SFH) upgraded to Outperform from Underperform by Credit Suisse. Specialty has the opportunity to add material value, the broker suggests, provided it can turn the struggling Rivers brand, now acquired, around. From a valuation perspective, the low price paid and the upside potential outweigh inventory and lease liability risk, the broker believes. Rating upgraded to Outperform directly from Underperform. Target rises to $1.00 from 91c.

Downgrades

Forge Group (FGE) downgraded to Neutral, High Risk from Buy by Citi and to Underperform from Neutral by Macquarie. The company will take a $127m write-down on the Diamantina and West Angeles power projects after costs blew out. The company has obtained increased funding from ANZ, but Citi notes this has been at a cost, whereby the bank has an effective 13% interest in the company via a warrant. Citi is asking where has all the cash gone? The broker is concerned that the project economics deteriorated to such an extent so quickly and, while management has undertaken a restructuring, it has not instilled confidence. This is particularly worrisome to the broker because of the significant size of the contract won at Roy Hill amid a background of falling margins. The rating is downgraded to Neutral, High Risk from Buy and the price target to 83c from $6.60. Macquarie became a little wary last month on contract timing slippages before downgrading Forge to Neutral from Buy. Slippages have become major contract write-downs for the company to the tune of $127m, which sees the broker swing its FY14 forecast earnings to a sizeable loss and reduce FY15 earnings by 87%. History suggests first estimates of contract losses are rarely the last, the broker warns. Target cut to 50% of net tangible asset value, to 43c from $5.34. FGE will need equity, the broker insists. Downgrade to Underperform.

Programmed Maintenance (PRG) downgraded to Neutral from Buy by Citi and to Neutral from Buy by UBS. Programmed reported a first half result largely in line with the first half last year. WA revenues were down but due to contract completions, while new contracts at Wheatstone and Ichthys will buffer the second half and FY15, the broker suggests. FY14 will nevertheless be flat on FY13, management suggested. Citi has left FY14 forecasts unchanged but has increased FY15-16 by 3%. Improvement in Property & Infrastructure earnings met a decline in resource earnings in the half and saw Programmed’s result fall short of UBS’ expectations. The broker has made minor forecast revisions. The broker suggests the merger with Integrated in 2007 has forced significant restructuring which is now beginning to bear fruit in terms of returns. On a 58% share price rise in 2013, the broker has downgraded to Neutral from Buy.

Telecom Corp of New Zealand (TEL) downgraded to Neutral from Outperform. The broker has dropped its rating on Telecom NZ to Neutral while retaining an NZ$2.40 target. The broker believes TEL can hold earnings flat ahead by reducing costs and increasing revenues in mobile, leading to stronger cash flow, de-leveraging and dividend support.

Earnings forecast in cents per share

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