Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Apr 18 2017

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

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.

Summary

Period: Monday April 10 to Friday April 14, 2017
Total Upgrades: 8
Total Downgrades: 10
Net Ratings Breakdown: Buy 43.69%; Hold 42.67%; Sell 13.64%

The shortened week ending April 13th saw more downgrades than upgrades for ASX-listed stocks released by stockbroking analysts.

As per usual, the devil is in the detail. Only half of all upgrades went to Buy (or an equivalent). Three companies received two downgrades: Regis Resources, Sandfire Resources and The Reject Shop. Only four downgrades (40%) ended with Sell. FNArena registered ten downgrades outnumbering eight upgrades for the week.

Among the lucky ones to receive one extra Buy rating were Independence Group, Insurance Australia Group and Telstra. The latter's share price has thus far paid no attention, however.

Among the downgrades to a Sell we find AGL Energy, Ardent Leisure and Regis Resources. The latter received two downgrades and both ended with Sell.

Outside of changes in ratings, there was very little activity in adjustments to valuations/price targets and earnings estimates. Most tables for the week don't make it to ten inclusions.

One underlying negative could be the fact that most adjustments for earnings estimates are negative. This week's tables certainly show this is the case, albeit with the caveat that all changes for the week were rather miniscule.

Perseus Mining, often on the negative side of any sort of amendments in months past, is the only one that finished the week with increased earnings forecasts, thanks to a much better than expected quarterly performance.

The two weeks ahead will be shortened too, and probably quieter, macro-events permitting.

Upgrade

DOWNER EDI LIMITED ((DOW)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/4/1

Credit Suisse adjusted numbers to reflect the full $1bn capital raising and minor changes in FY17 guidance. The broker upgrades to Neutral from Underperform.

Credit Suisse continues to struggle to find the rationale in the deal for Spotless ((SPO)), particularly the premium and lack of due diligence.

Whilst the company appears wedded to exposure to Spotless, one way or the other, the broker continues to exclude Spotless earnings  from estimates for the time being. Target is $5.90.

GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0

Macquarie reviews its battery sector coverage, ahead of what it believes is a supply-side inflection point. Coverage is transferred to another analyst.

While the broker believes pricing will soon pass its peak, in the near term there is expected to be a benefit from high prices. Galaxy is upgraded to Neutral from Underperform, given it has now secured Mount Cattlin's position as an independent producer. Target is $0.46.

The broker remains broadly negative on the lithium sector, with significant supply expected to come online.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/7/0

Morgan Stanley believes the company is uniquely placed to capture cost benefits and price tailwinds. The analysis shows margins of 17% in FY20 are achievable.

Organic capital generation is strong and the unwinding of the New Zealand tax losses and continuing quota benefits from Berkshire provide for options on capital. Adjusting for any Asian investment, capacity exists for over $500m in buy-backs, the broker observes.

Rating is upgraded to Overweight from Equal-weight. Target is raised to $6.80 from $6.30. Industry view is In-Line.

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/1

The company has updated FY17 production guidance from Nova. Nova is expected to hit full production during the first quarter of FY18.  Macquarie lifts FY17 nickel production forecast by 5% to better match the guidance.

The broker notes the company appears to have recovered from previously announced operating issues and upgrades to Outperform from Neutral. Target is raised to $4.10 from $4.00.


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