The broker wrap: brokers raise their ASX targets

ASX estimates are up!

This has forced a review of prospective market multiples for the current year. As a result, Goldman Sachs has lifted its forecasts for the S&P/ASX 200 index to 4,340 for the end of June and 4,600 for the end of December, up 5.9% and 2.2%, respectively from previous estimates. Looking at 2013, Goldman Sachs has also lifted its forecasts, but only modestly, with June-end and December-end estimates up by 0.5% each to 4,780 and 5,025, respectively.

On Monday, market strategists at Deutsche Bank, who remain amongst the more bullish in the market, reiterated their targets of 4,350 by mid-year and 4,700 by December – that’s a 10.7% gain from this morning’s level.

Overall, however, ratings downgrades remain the dominant change. Among the brokers in the FNArena database, there were 16 downgrades over the past week compared with just four upgrades, leaving total Buy ratings standing at 54.8%.

Upgrades

Among the upgrades was Computershare (CPU), Deutsche Bank lifting its rating to Buy given the view the tide is starting to turn for the stock. According to Deutsche, cyclical revenues appear to be bottoming out, while acquisitions and/or capital management also offer some potential upside.

Retail stocks continue to find the going tough, but this hasn’t stopped Deutsche upgrading Harvey Norman (HVN) to Buy. Expectations for the stock should be tempered somewhat though as the move follows a change in analyst, who is more positive on the potential for the group’s property portfolio to underpin value.

RBS Australia upgraded Nexus Energy (NXS) to Buy on the back of the company’s announcement the Crux assets would be developed into an integrated gas and liquids project. As RBS notes, the deal clears up funding issues for Nexus, while also offering greater clarity with respect to long-term growth plans.

Stockland (SGP) was also upgraded, but only to Neutral following a review of its model by Credit Suisse. Changes to assumptions meant an increase in price target.

Downgrades

On the downgrade side, Alumina Ltd (AWC) was lowered to Sell by BA Merrill Lynch because of lower global production being a negative for alumina prices and therefore earnings.

BA-ML also downgraded Ansell (ANN) to Neutral because the broker sees few short-term catalysts to drive share-price outperformance. BA-ML wasn’t alone in downgrading Ansell, as JP Morgan made a similar move to reflect ongoing Australian dollar headwinds and the postponement of a share buyback.

JP Morgan also downgraded Ardent Leisure (AAD) to Neutral to reflect lower theme park numbers stemming from wet weather in Queensland, while Bunnings Warehouse Property (BWP) copped downgrades to Neutral from both JP Morgan and BA-ML. While both see the yield as attractive, there is limited value in the stock relative to the sector.

Also in the property sector, Centro Retail (CRF) was downgraded by UBS to Neutral on valuation grounds given a recent run-up in the share price. Valuation was also the reason for RBS Australia downgrading Cochlear (COH) to a Hold.

It was a similar story for Telstra (TLS), with Citi moving to Neutral, while recent share price appreciation has been enough for RBS to downgrade both Webjet (WEB) and Toll Holdings (TOL) to Hold. For Webjet the downgrade came despite a solid interim result that saw forecasts and targets lifted across the market.

Tough conditions in the IT market have caused Data#3 (DTL) and Reckon (RKN) to find the going more difficult of late and both have paid the price; RBS downgraded the former to Hold and Macquarie made a similar change on the latter.

The finance sector is not finding things much easier as evidenced by a profit warning from Macquarie Group (MQG) and a disappointing quarterly report from National Australia Bank (NAB). This prompted downgrades in both cases, with Citi moving to Neutral on Macquarie and Deutsche doing the same with NAB.

Among the resource plays, Mount Gibson (MGX) was cut by JP Morgan to Neutral following what the broker viewed as a shocker of a result, with realised prices lower and costs higher than expected. Boardroom issues also remain, which is adding to the uncertainty surrounding the stock.

Changes to earnings forecasts (EF)

Note: FNArena ^[1] monitors eight leading stockbrokers on a daily basis: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.

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