Resources stocks dominated changes in earnings forecasts last week, both on the negative and on the positive side. On the positive side of the book, Woodside Petroleum and Fortescue Metals both got upgrades. But it was Ten Network (TEN) that trumped everybody else in terms of falling expectations.
In the good books
Navitas (NVT) was upgraded to Buy from Hold by Deutsche Bank. Navitas is entering a growth phase in the US as the business finally gains traction and Deutsche Bank sees opportunities for US universities to increase market share of international students. As Navitas is a leader in US University Pathway Programs (UPP), significant upside to valuation will come from success in this market.
Newcrest Mining (NCM) was upgraded to Outperform from Neutral by CIMB Securities, following a good start to FY14, with gold production of 586,600 ounces in the September quarter. While the balance sheet appears stretched, a 20% discount to valuation to account for the risks, produces a $13.50 price target, reduced from $13.60.
Tabcorp (TAH) was upgraded to Buy from Hold by Deutsche Bank following its recent investor briefing. Deutsche Bank believes Tabcorp is executing well in a competitive environment and expects compound annual earnings growth of 10% over the next three years. The Australian wagering market is growing and Tabcorp is seen holding its own.
Woodside Petroleum (WPL) was upgraded to Buy from Neutral by Citi. Revenue in the September quarter was slightly below Citi’s estimates and 2013 profit expectations have been downgraded by 1% because of the slight delay to the re-start of the Vincent oil project. Citi expects 2014 profit of US$2.55 billion, and is 14% above consensus.
In the not-so-good books
ANZ Bank (ANZ) was downgraded to Neutral from Outperform by Macquarie. While the broker believes the bank’s Asia growth strategy is a sound one longer term, margins will be under pressure in FY14 due to forex sensitivity and a mix-shift into lower margin products.
Fortescue Metals (FMG) was downgraded to Neutral from Outperform by CIMB Securities. The company is on track for iron ore shipments and has reiterated FY14 guidance of 127-133mt. Nevertheless, CIMB suspects that, with a forecast US$10/t fall in the iron ore price over the next 12 months, the stock’s ability to outperform is limited.
Orica (ORI) was downgraded to Sell from Neutral by UBS. The broker remains confident that the Australian explosives industry will be manageable but in the near term there are some challenges. Near-term challenges include falling coal mine strip ratios and volumes and on a longer view there are structural issues around regional ammonium nitrate oversupply.
Ten Network (TEN) was downgraded to Neutral from Outperform by Credit Suisse and to Underweight from Neutral by JP Morgan following its weak, but not unexpected, result. Credit Suisse believes management is adopting the right strategy to turn the network around, but delivery will take time. The FY13 result was ahead of JP Morgan’s expectation on better control of costs in TV. The broker has downgraded to Underweight from Neutral, believing any material revenue increase will take time and requirement reinvestment.
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