Weekly Reports | Mar 20 2017
By Rudi Filapek-Vandyck, Editor FNArena
The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Period: Monday March 13 to Friday March 17, 2017
Total Upgrades: 18
Total Downgrades: 9
Net Ratings Breakdown: Buy 43.67%; Hold 42.41%; Sell 13.92%
Commodities are back! After a long month of share price weakness, mining stocks in particular made a swift come-back on buyers' radar in the second full week of March and stockbroking analysts were partially responsible.
For the week ending on Friday, 17th March FNArena registered twice as many upgrades in recommendations for individual ASX-listed stocks than downgrades, and almost two-thirds of the upgrades went to mining and energy stocks, including Origin Energy (2x), BHP Billiton, Fortescue Metals and Rio Tinto.
These upgrades were issued alongside portfolio upgrades by top-down investment strategists. No wonder, the sector bounced back during the week.
FNArena registered 18 upgrades in total, 11 for commodity-related stocks, against nine downgrades, with only two resources stocks included on the negative side. Instead, the list of stocks hit by a downgrade is heavily populated by yield and property related stocks, including Vicinity Centres, Westfield and BWP Trust.
Note: GPT received two upgrades and both went to Buy. The market's state of mind is far from a full black-and-white division.
Positive changes to valuations and price targets remained few and far between, with Challenger demanding top spot for the week, enjoying a 4.6% increase, followed by Computershare (+2.7%) and CSL (+2.15%).
Negative changes have been more common and larger in size. Perseus Mining took the hardest blow: -12.7%. Then comes Myer (-3.7%), then follow OZ Minerals (-2.1%) and Westfield (-2%).
Resources' absolute dominance returns in the table for positive changes to profit estimates, with Syrah Resources on top (+26.3%), beating Alumina Ltd (+15.20%) and Fortescue Metals (+12.7%). Maybe reminding investors that not everyone in the sector is equally enjoying the wind in the back, the table for negative changes to profit estimates is also dominated by resources stocks, led by Perseus Mining (-18.8%), Independence Group (-8%) and Whitehaven Coal (-4%).
Note how the positive adjustments are much larger than the negative revisions.
ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/0/0
Macquarie observes gold equities continue to trade in a volatile way and this is expected to continue while gold prices are in the US$1150-1250/oz range. The broker believes share price volatility has opened up a value gap.
Macquarie upgrades to Outperform from Neutral on valuation grounds. Target is reduced to $2.80 from $2.90.
BHP BILLITON LIMITED ((BHP)) Upgrade to Add from Hold by Morgans .B/H/S: 3/5/0
Morgans believes the recent volatility in oil and iron ore is primarily driven by the US dollar swinging around, rather than any fundamental factors. Indeed, the broker believes the fundamentals are stronger than the market is accounting for.
The upgrade cycle for resources has a way to go, although miners are expected to remain disciplined in the short term after years of austerity. The broker does acknowledge there is room for some moderation in the iron ore price rally that may mean some additional short-term downside for share prices.
Morgans upgrades to Add from Hold, believing the share price is now back at attractive levels. Target is raised to $28.19 from $27.82.
CHALLENGER LIMITED ((CGF)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/4/0
Citi analysts remain of the view Challenger won't meet its own guidance for FY17 Life CoE performance, but they also believe the improved outlook for the future from the higher proportion of longer-dated sales suggests the shares are not as expensive as previously thought.
On the flipside, Citi is of the belief Challenger will have to raise additional capital, exact timing unknown. On the combination of all of the above, rating upgraded to Neutral from Sell. Target lifts to $11.90 from $10.35.
CHARTER HALL GROUP ((CHC)) Upgrade to Overweight from Underweight by Morgan Stanley .B/H/S: 3/2/1
Morgan Stanley believes the divergence between office and retail asset classes will widen as returns in office continue to improve and retail returns deteriorate. The broker also has a preference for active over passive A-REITs.
With a new analyst, the broker observes it has been too bearish on the growth outlook and the de-rating risk to Charter Hall. Despite the strong run in the stock, it is expected to deliver superior growth in free funds from operations and net tangible assets in the medium term.
Rating is upgraded to Overweight from Underweight. Target is raised to $5.65 from $4.45. Industry view is Cautious.
FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/1
UBS observes the stock is now trading at a larger discount to the market than historically has been the case, having been sold off by -11% since the interim result.
The broker continues to forecast peak earnings in FY18 but still expects the New Zealand construction cycle to remain elevated over the medium to longer term.
The stock is not aggressively priced, in the broker's view, and the rating is upgraded to Buy from Neutral. Target is raised to NZ$9.85 from NZ$10.05.