The Australian Bullish Consensus Report - May 07, 2002The...

The Australian Bullish Consensus Report - May 07, 2002
The Australian Bullish Consensus Report - May 07, 2002 "This summary has been prepared independently of the brokers identified. This service does not have the sponsorship, affiliation or approval of those brokers. This report is meant as information about brokers recommendations of today. Subscribers should check the full text of the recommendations before making any investment decision and consult their financial advisor before acting on these recommendations to suit their particular circumstances."

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SYDNEY (OFN) - Your Daily Summary of the major broker recommendation, valuation and forecast changes.

Bullish Consensus Today (BCR): 45.45% STRATEGY Citigroup - As liquidity is no longer driving the market and with earnings uncertainty ruling sentiment, strategists advocate we're back to stock picking among small caps. Advise investors not to become overly cautious as the Australian economy is still faring well. Focus should be on companies with sound business models that are in a position to deliver higher than average profit growth. Citigroup believes ARB Corp [ARP], Corporate Express [CXP], IRESS Market Technology [IRE], National Telecoms Group [NTG], STW Communications [SGN] and Tempo [TEM] are amongst those companies as well as Coates Hire [COA], OneSteel [OST], Smorgon Steel [SMS] and United Group [UGL].

JB Were - Believe market has become overly sensitive to execution risk and highlights certain stocks that are perceived to have such risks; Brambles [BIL], CSL [CSL], Coca-Cola Amatil [CCL], Patrick Corp [PRK], Toll Holdings [TOL], Southcorp [SRP] and Aristocrat [ALL].

ALCOHOL AND TOBACCO SECTOR Hartleys - Believe Australian consumers are directing their spending towards household and recreational goods rather than hospitality and services, including wine. Australian domestic wine shipments in March disappointing.

AUSTRALIAN DOLLAR Morgan Stanley - A$ seen continuing to rise as it is currently undervalued and fall in US$ should push A$ higher. A sharp US$ sell off, which is unlikely, would hurt News Corp [NCP], Brambles [BIL], BHP Billiton [BHP] and Southcorp [SRP].

GOLD SECTOR Morgan Stanley - Gold stocks seen outperforming. As US$ falls, political uncertainty continues and sectoral consolidation carries on. Further US$ decline could lift gold stocks further.

AUSTRALIAN AGRICULTURAL COMPANY LIMITED. [AAC] $0.81 CSFB - Under Review. Following 9 months results.

JB Were - Hold. Cut valuation to $1.13 from $1.15. Cut FY02 profit by 18.3%, FY03 by 3.8%.

ANACONDA NICKEL LIMITED [ANL] $0.39 BNP Paribas - Marketperform. Should be read as Speculative Hold. Production is up but bond holders hold the answers to the future. No news expected until after June 30.

AUSDOC GROUP LIMITED [AUD] $2.08 JB Were - Buy/LT Hold. Break-up valuation $2.40. Understand that major news about asset sale program can be expected as soon as next week.

BHP BILLITON LIMITED [BHP] $11.12 ABN Amro - Downgrade to Hold. Cut FY02 earnings to $2,039m and FY03 by 6.4% to $2,248m. Following review of Q3 result. Expect a disappointing second part to the recovery. Oil exposure is providing the upside. 12 mth target $11.50.

COLES MYER LTD. [CML] $6.47 BNP Paribas - Outperform. Cut FY02 profit by 13.5%, FY03 by 5.8% and FY04 by 2.0%. Profit warning is a disappointment but long term still looking solid. Locations, brands and buying power should not be under estimated. 12 mth target $8.50.

Citigroup - Downgrade to Underperform, Low Risk from Outperform. Note that the revised FY02 profit guidance comes after a confirmation of this guidance at the end of March and states that credibility will be hard to rebuild. See no catalysts for share price recovery in short term. Cut FY03 forecasts but note that analysts have little to base their assumptions on.

CSFB - Sell. Target $6.25. Would be surprised if setback has only a short term character. Believes current strategy has to be reviewed as there aparantly are some flaws in it. Also, are concerned about Myer Grace's upmarket shift in apparel. Cut FY02 profit by 15% to $338m, FY03 by 18% to $435m and FY04 by 12% to $541m. Cut valuation by 12% to $7.91. Point out that confidence in FY03 and onwards numbers is low.

Hartley Poynton - Hold. Cut valuation by $1.43 to $7.02 on assumption of slower positioning of Merchandise and Apparel. Expect stock to remain under pressure short term.

JB Were - Hold. Valuation $7.60. Cut forecasts by 12%.

JP Morgan - LT Buy. Although the profit warning has hurt the reputation of Fletcher, this should be the end of the bad news. Long term food and liquor margins of 4% EBIT look achievable.

Macquarie - Marketperform/LT Marketperform. Cut FY02 earnings by $54m to $355m and FY03 by $20m to $483m. In some ways just a delay in the turnaround but also a case of conflicting businesses. Back of store process improvements unlikely to make an impact until FY04.

Merrill Lynch - Downgrade to Neutral/Neutral from Buy/Strong Buy. Profit warning shows plans were too ambitious. Cut FY02 profit by $56m to $352m and FY03 by $71m to $409m. Evidence of turnaround may not come until 1H03.

UBS Warburg - Buy. See limited catalysts for outperformance in medium term, but believe mid to long term fundalentals remain intact. Cut FY02 profit to $350m from $400m, FY03 by 19.3% to $430m, FY04 by 20.6%. Valuation dropped to $7.02 from $9.50. Cut target to $7.55 from $10.00.

CSR LIMITED [CSR] $6.45 Citigroup - Neutral, Medium Risk. US Transportation and Infrastructure Committee has approved restoration of US$4.4bn budget, implying a positive note but analysts note that the total level of guaranteed funding in FY03 is still 13% below this year. Many issues remain.

FAIRFAX (JOHN) HOLDINGS LIMITED [FXJ] $3.64 Macquarie - Outperform/LT Strong Outperform. Cut FY02 profit by 9% to $85.8m. Rebound in advertising revenue should have started by now, but appears to have been delayed. Cut 12 mth valuation by 45c to $4.25.

INSURANCE AUSTRALIA GROUP LIMITED [IAG] $3.44 Citigroup - Neutral, Medium Risk. Issuance of reset preference shares to be mildy EPS positive. Company to hold strategy day on May 15. Believe much of upside is already factored in.

CSFB - Buy. Target $3.90. Consider the proximity of MSCI reweighing and off-market buy back as providers of solid support to share price.

Deutsche Bank - Buy. Buyback announcement shows management's ability to deliver on prestated aims. Operating earnings are improving. 12 mth target $3.80.

JB Were - Hold. Valuation $3.00. View buy back and issue of Reset Preference Shares as sensible capital management initiative.

JP Morgan - Market Performer. Share buyback and issue of preference shares should lift EPS by 2.8%, but as the buyback is likely to have a high degree of participation a scale back is probable.

Macquarie - Outperform/LT Outperform. Lift FY03 onwards earnings by 2-3% following buyback announcement.

UBS Warburg - Buy. Target to $3.90. Buy back and issue of Reset Preference Shares has potential to be accretive by 1% in FY03. Believe that strong earnings momentum in combination with MSCI reweighing and buy back will lead share price towards target.

LEIGHTON HOLDINGS LIMITED [LEI] $11.20 Deutsche Bank - Buy. Success from company's ability to deliver increased share of earnings from high value long term projects should see it outperform. 12 mth target $11.62.

NEWS CORPORATION LIMITED (THE) [NCP] $11.71 Citigroup - Outperform, Medium Risk. Raised Q3 profit forecast to $355m from $296m, EPS to US$0.16 from US$0.13. Believe stock is oversold and is poised for a recovery in short term. Short term target $13.75.

CSFB - Buy. Target $17.00. Believe nothing of US recovery in advertisements has been factored in at current price level. Also believe that delivery of results will be key share price driver in coming months.

Macquarie - Underperform/LT Outperform. Vivendi deal to buy Stream for US$300m now in doubt. This could lead to US$300m writedown which has not yet been factored in.

NUFARM LIMITED [NUF] $3.93 UBS Warburg - Buy. Lift target to $4.70 from $4.50. Lift FY03, FY04 by 5%. Following completion of distribution agreement with Monsanto. One of the top small picks.

ORICA LIMITED [ORI] $9.22 CSFB - Buy. Lift target to $10.87. Company delivered on its promise. Anticipate material (20%) market upgrades, feeding further market outperformance. Lift FY02 profit by 17.2% to $206.2m, FY03 by 3.2% to $245.7m.

Hartley Poynton - Upgrade to Hold from Sell. Believe that sentiment will remain positive as market will focus on strength of earnings growth and cost cuttings.

JB Were - Hold. Lift valuation to $9.35. Lift FY02 EPS by 40%. Following H1 FY02 results.

Macquarie - Outperform/LT Outperform. Result well above expectations. Lift FY02 earnings by 22%, FY03 by 26% and FY04 by 29% as cost savings continue. Lift valuation range to $10.40-80. Positive sentiment set to increase.

UBS Warburg - Buy. Increased target to $11.00 from $9.30. Lift FY02 profit by 17% to $210m, FY03 by 9% to $240m. Following H1 result. One of the top basic materials picks.

PERPETUAL TRUSTEES AUSTRALIA LIMITED [PPT] $47.15 Deutsche Bank - Buy. Lift FY02 EPS by 4.9% and FY03 EPS by 3.9%. Solid fund inflows are continuing, leaving company well placed to register strong second half earnings growth. 12 mth target $50.00.

PATRICK CORPORATION LIMITED [PRK] $16.18 Merrill Lynch - Initiating coverage with Neutral/LT Strong Buy recommendation. Strong market position in ports and rail along with potential from Virgin Blue, if it can capture 35%+ market share, lead to a positive outlook for the long term.

ROC OIL COMPANY LIMITED [ROC] $1.42 Macquarie - Marketperform/LT Marketperform. Cut FY02 profit by 20% and FY03 by 12%. Cut valuation to $1.64. Few share price drivers on the horizon before Q3 drilling in Mauritania.

ST GEORGE BANK LIMITED [SGB] $19.60 CSFB - Hold. Target $18.00. To review forecasts and target price following interim result. Believe there is furtjer upside if management delivers. Forecast H1 FY02 pre-prefs profit $262m, dividend $0.36.

JP Morgan - Market Performer. Expecting H1 profit of $280m today. Considerable opportunity exists for operational efficiency, this will be of key interest.

SINGAPORE TELECOMMUNICATIONS LIMITED. [SGT] $1.56 Macquarie - Outperform/LT Marketperform. Lift FY03/04 profit by 3% following corporate tax rate changes in Singapore. Focus on a possible writedown is misguided and has presented a buying opportunity. Investors should act quickly before the possible turnaround.

SUNCORP-METWAY LIMITED. [SUN] $12.58 Merrill Lynch - Neutral/LT Buy. Cut FY02 EPS by 3% but lift FY03 by 4%. Lift June 2003 valuation to $13.00. Evidence of acquisition synergies is needed as is a clarification on earnings risk from CTP exposure in Qld.

SYMEX HOLDINGS LIMITED [SYM] $1.17 UBS Warburg - Buy. Target $1.75. Competing bid for Asia Pacific Specialty Chemicals [APY] complicates matters for company. Current valuation includes only 10c related to Asia Pacific Specialty Chemicals, therefore any impact will be modest.

TELSTRA CORPORATION LIMITED. [TLS] $4.74 BNP Paribas - Outperform. Looks good value at current prices but key near term drivers exist. Will outperform on a 6-12 mth basis on expected telecom sector recovery. 12 mth target $5.90.

JB Were - Reduce/LT Hold. Valuation $4.80. Note there is a striking similarity between trends in telecom internationally and here in Australia. Consider stock as fully priced on an international relative basis.

TOLL HOLDINGS LIMITED [TOL] $35.87 Merrill Lynch - Reinitiating coverage with Neutral/LT Buy. Believe current price is good reflecting, with risks evenly balanced.

END.