Australia | Feb 02 2015
This story features AUB GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: AUB
By Rudi Filapek-Vandyck, Editor FNArena
Guide:
The FNArena database tabulates the views of eight major Australian and international stock brokers: CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley 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 January 26 to Friday January 30, 2015
Total Upgrades: 9
Total Downgrades: 10
Net Ratings Breakdown: Buy 44.00%; Hold 38.97%; Sell 17.03%
The final week before local reporting season saw stockbroking analysts drop their overall activity by a notch, though FNArena still recorded 19 changes in ratings for individual stocks with downgrades (10) slightly outnumbering upgrades (9).
Commodity prices are still being adjusted to the downside, thus energy stocks and miners continue to feature heavily on the negative side for valuations & price targets and for profit forecasts. On top come companies issuing profit warnings (The Reject Shop, Kathmandu, Austbrokers) or suffering from failed take-over scenarios (Bradken).
All is not negative on the commodities side of the market with select resources stocks making their appearance on the positive side with some December quarter production reports surprising to the upside (Evolution Mining, Perseus, etc).
Upgrades
Arrium ((ARI)) upgraded to Neutral from Sell by Citi. B/H/S: 1/5/2
Citi analysts have updated modeling for the latest changes in commodity prices and FX forecasts, as well as the company's announced restructuring of its iron ore operations. The end result is an upgrade to Neutral from Sell with a new price target of $0.25 (was $0.52). Citi observes its non-consensus forecasts of AUD:USD 0.72 and iron ore at US$58/tonne keep the pressure high for Arrium, with the latter more than outweighing the tailwind benefits from the weaker currency.
See also ARI downgrade.
Austbrokers ((AUB)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 2/1/0
Austbrokers has revised down FY15 profit growth guidance to 0-5%. The company has flagged that lower premium rates have been offset by an increase in volume and income such that brokerage income would be flat. Credit Suisse notes the significant fall in the share price over the past year and considers the stock is fair value. That said, the broker does not believe the price represents a cheap entry point but rather the de-rating that has occurred is justified. Credit Suisse upgrades its rating to Neutral from Underperform. Target is reduced to $9.40 from $10.90.
Beadell Resources ((BDR)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 5/0/0
Restricted access to the Duckhead pit meant Beadell's December quarter production fell 22% short of the level required to achieve 2014 guidance. However, record through-put was achieved at the mill and cost performance has improved markedly, the broker notes. Cash increased in the quarter and exploration continues to prove promising. Hence, the broker envisages a positive quarter despite the production miss, much improved on a number of metrics. This, and the commencement of the MACA partnership, are enough to prompt an upgrade to Outperform. Target unchanged at 48c.
Fortescue Metals ((FMG)) upgraded to Overweight from Equal-weight by Morgan Stanley. B/H/S: 3/5/0
Morgan Stanley notes reduced costs and capex assumptions in the December quarter production report and this leads it to a view that Fortescue can ride out the downturn. Still, staying cash-flow positive is not enough and the broker believes prices need to rise in the next few years to justify its new Overweight view, upgraded from Equal-weight. Target is raised to $2.90 from $2.70.
Independence Group ((IGO)) upgraded to Buy from Neutral by UBS. B/H/S: 5/1/1
Guidance for FY15 is unchanged after the December quarter production report but UBS notes all assets are performing at levels which mean it should be comfortably met. UBS upgrades to Buy from Neutral given the strong cash flow which should drive growth and dividends. Target is raised to $5.10 from $4.90. Gold should account for 46% of the revenue base in FY15 on the broker's estimates, demonstrating the diversity in the company's earnings profile. Target is raised to $5.10 from $4.90.
Myer ((MYR)) upgraded to Neutral from Sell by UBS. B/H/S: 1/5/2
UBS is upgrading to Neutral from Sell following a share price decline of around 30% since September. The broker is increasingly confident in management's ability to meet or exceed forecasts for the first half. Target is reduced to $1.50 from $1.60. UBS considers the valuation attractive and outlook is improving despite the long-term structural risks which remain. Feedback on the core business suggests a "flattish" like-for-like result in the first half with growth driven by new stores, refurbishments and online.
Pact Group ((PGH)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 4/1/0
Resin prices fell further over the last two months and the broker expects Pact may experience margin expansion in the second half, as selling prices adjust to the lag in raw material costs. The rubbish bin business is also operating in a solid price environment and Credit Suisse revises up earnings multiples. The global packaging sector has been generously re-rated, the broker observes, and Pact is likely to continue participating. Rating is upgraded to Neutral from Underperform and the target to $4.80 from $4.05.
Santos ((STO)) upgraded to Buy from Neutral by UBS. B/H/S: 5/2/0
UBS is upgrading to Buy from Neutral after incorporating lower oil price assumptions. Target is reduced to $9.50 from $9.60. While prices are expected to stay volatile the broker considers the share price decline of 47% since early September more than adequately compensates for the fall in the oil price and the chance of an equity raising.The company posted a better-than-expected end to 2014 with December quarter production surprising on the upside.
Silver Lake Resources ((SLR)) upgraded to Neutral from Underperform by Macquarie. B/H/S: 1/3/0
Silver Lake's December quarter production came in ahead of forecasts due to higher grades, but costs have blown out significantly, the broker notes, for various reasons. Deferring capex on Daisy and Cock-Eyed Bob will at least provide some cost relief. Silver Lake nevertheless needs a mine plan incorporating higher grade open pit feed, the broker suggests. Target price falls to 23c from 30c but after a 20% share price plunge the broker upgrades to Neutral.
Downgrades
Australian Pharmaceutical ((API)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 1/2/2
The continued recovery in the company's earnings is encouraging but Deutsche Bank observes, after a period of outperformance, the shares are now trading in line with the revised valuation. The company reported a 7.5% lift in retail sales in the first 4.5 months of FY15 which compares with the broker's estimate of 8.0% for the year. Deutsche Bank downgrades to Hold from Buy, given limited upside to the share price. Target is raised to 90c from 80c.
Arrium ((ARI)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/5/2
The company has signalled the closure of its Southern Iron operations, which did not surprise Credit Suisse. The iron ore impairment of $1.17bn is in line with expectations. While the iron ore asset is taken from the balance sheet the broker expects the debt liability will continue to challenge the company for many years. The broker considers an additional steel impairment of $169m is effectively a proxy for a further steel downgrade, reflecting poorer near-term steel spreads. Credit Suisse downgrades to Neutral from Outperform and retains a 23c price target.
See also ARI upgrade.
AWE ((AWE)) downgraded to Neutral from Buy by UBS. B/H/S: 3/3/0
UBS has lowered oil price forecasts and reduces its valuation of AWE. The broker anticipates AWE has capacity in its balance sheet to weather the low oil price and defer capex. Still, the broker downgrades to Neutral from Buy and lowers the target to $1.40 from $2.00.
Bradken ((BKN)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 2/5/0
The bid for Bradken will not proceed as the consortium could not arrange finance on acceptable terms. Target is reduced to $2.80 from the $5.10 that was based on the bid price. Commodity prices have taken another leg down since the AGM and Macquarie expects Bradken will likely focus on repaying debt by lowering dividends in the near term. The broker downgrades to Neutral from Outperform as, while there remains demand for consumables, the demand for capital products is likely to remain subdued. Debt levels are also expected to limit future initiatives.
Credit Corp ((CCP)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 0/1/0
Nothing wrong with Credit Corp which, JP Morgan believes, still has strong growth potential in front of it. It's just that the share price has run up so fast, closing the gap with the (now revised higher) price target, and even moving above it. JP Morgan has downgraded to Neutral from Overweight. Price target has risen to $11.05 from $10.55. The stockbroker saw a strong interim result, but also notes management has left guidance for FY15 unchanged.On a relative basis, this company remains JP Morgan's preferred stock in the listed debt collection sector in Australia.
GrainCorp ((GNC)) downgraded to Sell from Neutral by UBS. B/H/S: 1/2/3
Recent rainfall in parts of the east coast is too late for the winter crop harvest and unlikely to materially affect the summer crop but could improve winter planting in May if sustained. A falling Australian dollar also improves GrainCorp's outlook, as UBS notes it translates positively for offshore earnings as well as making Australian grain relatively cheaper. UBS downgrades its rating to Sell from Neutral after strong share price performance and now forecasts negative total shareholder returns. Target is steady at $8.20. There remains a clear risk of a takeover of the company's assets. ADM has 19.8% of the register but the broker does not expect approval of a foreign takeover will happen before the next federal election.
Gryphon Minerals ((GRY)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/1/0
Gryphon's quarterly suggested that Banfora is still on track, but the broker finds this at odds with cost and staff reductions. Approval for the debt issue has been delayed due to civil unrest in Burkina Faso, but the company is sitting on $24m in cash which could have been deployed, thus the broker is frustrated with the lack of progress at Banfora. It's enough to prompt a downgrade to Neutral. Target unchanged at 9c.
Tap Oil ((TAP)) downgraded to Sell from Neutral by UBS. B/H/S: 0/1/1
After downgrading the stock last month on the back of lower oil price forecasts UBS has reduced its valuation again, noting that low oil prices could not have come at a worse time for the company. The broker has also removed any valuation for the company's exploration assets, considering it will be difficult to achieve fair value for these assets in this market. Rating is downgraded to Sell from Neutral and the target to 35c from 45c. Production has just started at Manora and will ramp up just as the broker forecasts the oil price will reach its lows.
The Reject Shop ((TRS)) downgraded to Sell from Neutral by UBS. B/H/S: 0/2/2
The company has announced that first half earnings will be down 14%. UBS observes cash flows appear to have been reasonable and sales were noted to have stabilised in January. The tough decisions on store closures are still to come and UBS also believes the weakening Australian dollar looks ominous. UBS reduces forecasts by 15-25% and forecasts a long-term earnings margin of 2.5%. Given the negative forecast shareholder return the broker downgrades to Sell from Neutral. Target is lowered to $5.30 from $6.60.
Westpac ((WBC)) downgraded to Sell from Neutral by Citi. B/H/S: 2/3/3
Citi analysts have come to the conclusion Westpac post-Gail Kelly will have to face more significant challenges than opportunities for its key Australian operations and this has triggered a downgrade to Sell from Neutral, accompanied by a cut in price target to $32 from $34. Amongst the challenges that need to be tackled are the risk of an "overdose" on mortgage lending, high costs for running a multi-brand strategy and a challenging revenue outlook for the wholesale and institutional divisions. Life insurance via BT Investment Management ((BTT)) on the other hand is seen offering strong growth possibilities. Westpac remains third preferred bank amongst the Big Four, still beating National Australia Bank ((NAB)) at Citi. Estimates have been cut, though not DPS forecasts.
Total Recommendations |
Recommendation Changes |
Broker Recommendation Breakup |
Broker Rating
Order | Company | Old Rating | New Rating | Broker | |
---|---|---|---|---|---|
Upgrade | |||||
1 | ARRIUM LIMITED | Sell | Neutral | Citi | |
2 | AUSTBROKERS HOLDINGS LIMITED | Sell | Neutral | Credit Suisse | |
3 | BEADELL RESOURCES LIMITED | Neutral | Buy | Macquarie | |
4 | FORTESCUE METALS GROUP LTD | Neutral | Buy | Morgan Stanley | |
5 | INDEPENDENCE GROUP NL | Neutral | Buy | UBS | |
6 | MYER HOLDINGS LIMITED | Sell | Neutral | UBS | |
7 | PACT GROUP HOLDINGS LTD | Sell | Neutral | Credit Suisse | |
8 | SANTOS LIMITED | Neutral | Buy | UBS | |
9 | SILVER LAKE RESOURCES LIMITED | Sell | Neutral | Macquarie | |
Downgrade | |||||
10 | ARRIUM LIMITED | Buy | Neutral | Credit Suisse | |
11 | AUSTRALIAN PHARMACEUTICAL INDUSTRIES | Buy | Neutral | Deutsche Bank | |
12 | AWE LIMITED | Buy | Neutral | UBS | |
13 | BRADKEN LIMITED | Buy | Neutral | Macquarie | |
14 | CREDIT CORP GROUP LIMITED | Buy | Neutral | JP Morgan | |
15 | GRAINCORP LIMITED | Neutral | Sell | UBS | |
16 | GRYPHON MINERALS LIMITED | Buy | Neutral | Macquarie | |
17 | TAP OIL LIMITED | Neutral | Sell | UBS | |
18 | THE REJECT SHOP LIMITED | Neutral | Sell | UBS | |
19 | WESTPAC BANKING CORPORATION | Neutral | Sell | Citi |
Recommendation
Positive Change Covered by > 2 Brokers
Order | Symbol | Company | Previous Rating | New Rating | Change | Recs |
---|---|---|---|---|---|---|
1 | AUB | AUSTBROKERS HOLDINGS LIMITED | 33.0% | 67.0% | 34.0% | 3 |
2 | BDR | BEADELL RESOURCES LIMITED | 75.0% | 100.0% | 25.0% | 5 |
3 | PGH | PACT GROUP HOLDINGS LTD | 60.0% | 80.0% | 20.0% | 5 |
4 | EHE | ESTIA HEALTH LIMITED | 33.0% | 50.0% | 17.0% | 4 |
5 | IGO | INDEPENDENCE GROUP NL | 43.0% | 57.0% | 14.0% | 7 |
6 | STO | SANTOS LIMITED | 57.0% | 71.0% | 14.0% | 7 |
7 | FMG | FORTESCUE METALS GROUP LTD | 25.0% | 38.0% | 13.0% | 8 |
8 | MYR | MYER HOLDINGS LIMITED | – 25.0% | – 13.0% | 12.0% | 8 |
9 | AMP | AMP LIMITED | 13.0% | 25.0% | 12.0% | 8 |
10 | TOX | TOX FREE SOLUTIONS LIMITED | 50.0% | 60.0% | 10.0% | 5 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Company | Previous Rating | New Rating | Change | Recs |
---|---|---|---|---|---|---|
1 | EVN | EVOLUTION MINING LIMITED | 50.0% | 20.0% | – 30.0% | 5 |
2 | KMD | KATHMANDU HOLDINGS LIMITED | 100.0% | 75.0% | – 25.0% | 4 |
3 | TRS | THE REJECT SHOP LIMITED | – 25.0% | – 50.0% | – 25.0% | 4 |
4 | API | AUSTRALIAN PHARMACEUTICAL INDUSTRIES | – 20.0% | – 40.0% | – 20.0% | 5 |
5 | AWE | AWE LIMITED | 67.0% | 50.0% | – 17.0% | 6 |
6 | GNC | GRAINCORP LIMITED | – 17.0% | – 33.0% | – 16.0% | 6 |
7 | BKN | BRADKEN LIMITED | 43.0% | 29.0% | – 14.0% | 7 |
8 | BWP | BWP TRUST | – 67.0% | – 75.0% | – 8.0% | 4 |
9 | JHC | JAPARA HEALTHCARE LIMITED | 33.0% | 25.0% | – 8.0% | 4 |
Target Price
Positive Change Covered by > 2 Brokers
Order | Symbol | Company | Previous Target | New Target | Change | Recs |
---|---|---|---|---|---|---|
1 | EVN | EVOLUTION MINING LIMITED | 0.815 | 0.888 | 8.96% | 5 |
2 | TOX | TOX FREE SOLUTIONS LIMITED | 2.908 | 3.138 | 7.91% | 5 |
3 | API | AUSTRALIAN PHARMACEUTICAL INDUSTRIES | 0.726 | 0.768 | 5.79% | 5 |
4 | PGH | PACT GROUP HOLDINGS LTD | 4.300 | 4.450 | 3.49% | 5 |
5 | BWP | BWP TRUST | 2.370 | 2.433 | 2.66% | 4 |
6 | EHE | ESTIA HEALTH LIMITED | 5.450 | 5.588 | 2.53% | 4 |
7 | IGO | INDEPENDENCE GROUP NL | 5.029 | 5.136 | 2.13% | 7 |
8 | BDR | BEADELL RESOURCES LIMITED | 0.610 | 0.618 | 1.31% | 5 |
9 | AHE | AUTOMOTIVE HOLDINGS GROUP LIMITED | 4.125 | 4.179 | 1.31% | 7 |
10 | STO | SANTOS LIMITED | 10.886 | 11.000 | 1.05% | 7 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Company | Previous Target | New Target | Change | Recs |
---|---|---|---|---|---|---|
1 | TRS | THE REJECT SHOP LIMITED | 7.975 | 6.275 | – 21.32% | 4 |
2 | KMD | KATHMANDU HOLDINGS LIMITED | 3.220 | 2.730 | – 15.22% | 4 |
3 | BKN | BRADKEN LIMITED | 4.801 | 4.259 | – 11.29% | 7 |
4 | AUB | AUSTBROKERS HOLDINGS LIMITED | 11.300 | 10.467 | – 7.37% | 3 |
5 | AWE | AWE LIMITED | 1.700 | 1.610 | – 5.29% | 6 |
6 | JHC | JAPARA HEALTHCARE LIMITED | 2.593 | 2.475 | – 4.55% | 4 |
7 | FMG | FORTESCUE METALS GROUP LTD | 2.744 | 2.700 | – 1.60% | 8 |
8 | MYR | MYER HOLDINGS LIMITED | 1.783 | 1.770 | – 0.73% | 8 |
Earning Forecast
Positive Change Covered by > 2 Brokers
Order | Symbol | Company | Previous EF | New EF | Change | Recs |
---|---|---|---|---|---|---|
1 | EVN | EVOLUTION MINING LIMITED | 6.248 | 7.900 | 26.44% | 5 |
2 | PRU | PERSEUS MINING LIMITED | 3.903 | 4.474 | 14.63% | 7 |
3 | MML | MEDUSA MINING LIMITED | 20.570 | 22.943 | 11.54% | 4 |
4 | QAN | QANTAS AIRWAYS LIMITED | 16.195 | 17.820 | 10.03% | 6 |
5 | NCM | NEWCREST MINING LIMITED | 40.594 | 43.981 | 8.34% | 8 |
6 | TOX | TOX FREE SOLUTIONS LIMITED | 18.350 | 19.320 | 5.29% | 5 |
7 | SFR | SANDFIRE RESOURCES NL | 66.394 | 69.360 | 4.47% | 8 |
8 | STO | SANTOS LIMITED | 53.134 | 54.913 | 3.35% | 7 |
9 | API | AUSTRALIAN PHARMACEUTICAL INDUSTRIES | 6.558 | 6.738 | 2.74% | 5 |
10 | EHE | ESTIA HEALTH LIMITED | 22.800 | 23.350 | 2.41% | 4 |
Negative Change Covered by > 2 Brokers
Order | Symbol | Company | Previous EF | New EF | Change | Recs |
---|---|---|---|---|---|---|
1 | AWE | AWE LIMITED | 2.467 | – 1.133 | – 145.93% | 6 |
2 | MQA | MACQUARIE ATLAS ROADS GROUP | 7.417 | – 3.400 | – 145.84% | 6 |
3 | BDR | BEADELL RESOURCES LIMITED | 9.580 | 6.800 | – 29.02% | 5 |
4 | SXY | SENEX ENERGY LIMITED | 0.467 | 0.333 | – 28.69% | 6 |
5 | TRS | THE REJECT SHOP LIMITED | 53.413 | 44.930 | – 15.88% | 4 |
6 | DLS | DRILLSEARCH ENERGY LIMITED | 11.583 | 10.105 | – 12.76% | 6 |
7 | PNA | PANAUST LIMITED | 10.492 | 9.326 | – 11.11% | 7 |
8 | BPT | BEACH ENERGY LIMITED | 9.486 | 8.529 | – 10.09% | 7 |
9 | WSA | WESTERN AREAS NL | 30.871 | 28.443 | – 7.86% | 7 |
10 | OSH | OIL SEARCH LIMITED | 37.691 | 35.762 | – 5.12% | 7 |
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CHARTS
For more info SHARE ANALYSIS: AUB - AUB GROUP LIMITED
For more info SHARE ANALYSIS: CCP - CREDIT CORP GROUP LIMITED
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: GNC - GRAINCORP LIMITED
For more info SHARE ANALYSIS: IGO - IGO LIMITED
For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED
For more info SHARE ANALYSIS: PGH - PACT GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: SLR - SILVER LAKE RESOURCES LIMITED
For more info SHARE ANALYSIS: STO - SANTOS LIMITED
For more info SHARE ANALYSIS: TRS - REJECT SHOP LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION