Australia | Aug 31 2015
This story features AIR NEW ZEALAND LIMITED, and other companies. For more info SHARE ANALYSIS: AIZ
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, JP Morgan, Macquarie, Morgan Stanley, Morgans 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 August 24 to Friday August 28, 2015
Total Upgrades: 53
Total Downgrades: 11
Net Ratings Breakdown: Buy 44.96%; Hold 41.67%; Sell 13.37%
The local August reporting season leapt to the finish in Big Bang style with no less than 53 rating upgrades and 11 downgrades registered for the week ending Friday, 28th August 2015. There have been reporting seasons in the past when those numbers pretty much covered the whole season, not one sole week.
This year’s August reporting season has been as much about falling share prices as it has been about financial performances. The persistent trend that sees stockbroking analysts issue far more rating upgrades than downgrades is causing the gap between Neutral ratings and Buy recommendations to consistently widen. Total Buy and equivalent ratings for the eight stockbrokers monitored daily by FNArena now stands at nearly 45% against 41.67% on Neutral, and still widening.
Look into the details and you will discover there are still only three of those eight stockbrokers that have most ratings for individual stocks in the Buy basket, and their names all start with M; Macquarie, Morgans and Morgan Stanley. Bizarre is the word that comes to mind.
Amcor, BC Iron, Caltex Australia, Medibank Private, Pacific Brands, Ramsay Healthcare, Transfield Services, Transpacific Industries and Westfield all received multiple upgrades last week. Of the eleven downgrades, only two went to Sell; Boral and nib Holdings.
There arenty of fireworks in the tables for revisions to valuations & price targets with the negative side mostly populated by resources and related stocks. On the positive side we find Webjet, Cover-More and Medibank Private in the week’s Top Three.
Changes to profit forecasts look enormous, but that’s what you get when small and micro-caps are only covered by the occasional analyst. Add small cap resource stocks and a recipe for an explosive brew is but a given. Last week positive changes were equally explosive with Pacific Brands, Qantas, Western Areas and Horizon Oil leading a list on which even the number ten, Sandfire Resources, enjoyed positive revision of nearly 29%.
ASALEO CARE LIMITED ((AHY)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/0/0
First half earnings reflect slower sales and a lower Australian dollar and Citi lowers FY15 forecasts by 2.0%.
The broker upgrades to Buy from a Neutral rating, noting the $100m share buy-back that was announced and some underlying trends which are positive for profit margins. Target is reduced to $1.90 from $2.00.
AIR NEW ZEALAND LIMITED ((AIZ)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/1/0
Operating revenue exceeded forecasts but earnings were below Credit Suisse’s estimates, primarily because of higher maintenance expenses.
FY16 heralds more vigorous competition from Qantas ((QAN)) and there is additional uncertainty in the depreciation of the NZ dollar.
Rating is upgraded to Neutral from Underperform. Target is raised to NZ$2.40 from NZ$2.30.
AMCOR LIMITED ((AMC)) Upgrade to Buy from Neutral by Citi and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/3/0
Despite a deteriorating backdrop the company grew earnings and margins in FY15. Defensive markets are also expected to help in FY16.
Citi upgrades to Buy from Neutral, given the robust fundamentals with enhanced returns. Target is raised to $14.42 from $14.10.
FY15 results were in line. Credit Suisse considers the stock undervalued and upgrades to Outperform from Neutral, given the share price has fallen 5.0% since early July.
Modest earnings growth is expected to carry the shares towards the broker’s target of $14.60 over the next 12 months.
APA GROUP ((APA)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 5/3/0
FY15 earnings were in line. Credit Suisse was disappointed in net debt and net interest guidance. An emphasis on dividend stability and gearing, plus a pay-out ratio greater than 100% will result in moderate growth.
Credit Suisse upgrades to Neutral from Underperform ahead of the Northern Territory link approval, which is a significant positive catalyst. Target is raised to $8.50 from $8.10.
AP Eagers Limited ((APE)) Upgrade to Add from Hold by Morgans .B/H/S: 1/2/0
While well guided, the first half result delivered exceptional growth despite the tailwinds.
Morgans is cautious about becoming positive on the stock following the exceptional share price performance but the track record speaks for itself.
The dividend of 12c was ahead of the broker’s forecasts. A Hold rating is maintained. Target is raised to $11.16 from $9.71. Rating is upgraded to Add from Hold.
BC IRON LIMITED ((BCI)) Upgrade to Neutral from Sell by UBS and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0
BC Iron’s full-year loss was nearly double UBS’s forecast, the divergence largely due to impairments arising from lower iron-ore prices.
The miner also flagged a one-off $400,000 impairment of its Koodaideri royalty. UBS excludes this from earnings estimates, which rise over FY16/17.
Target price is steady at 25 cents per share and compares with net cash backing of 31 cents.
UBS upgrades BC Iron to Neutral from Sell given recent share-price weakness and the potential of option value from the Koodaideri royalty.
Macquarie has reviewed its BC Iron forecasts after incorporating the June Q production result and commentary with regard the Iron Valley outlook from Mineral Resources ((MIN)). The result is a significant trimming of FY15-16 forecasts losses and a return to profit in FY17.
The potential to restructure the ownership of Iron Valley presents a positive catalyst, Macquarie believes, particularly if cash can be realised from the mine gate sales agreement. Upgrade to Outperform. Target unchanged at 40c.
BEACH ENERGY LIMITED ((BPT)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/1
FY15 results were largely in line with expectations but the dividend has been halved. Credit Suisse is not surprised, given the company is preserving cash while talking up the chance of acquisitions.
The broker believes the reserves statement is a negative, but impairments are hardly a surprise in the current environment. The valuation is reduced and target downgraded to 85c from $1.00.
Still, even at US$55-60/bbl for oil the company should be positive in terms of cash flow. Rating is upgraded to Outperform from Neutral.
CABCHARGE AUSTRALIA LIMITED ((CAB)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/2/1
Profit in FY15 was below Deutsche Bank’s forecasts and down 13% year on year. Deutsche Bank downgrades FY16 estimates by 5.0%.
The industry reforms underway should lead to a more competitive market and present ongoing earnings risk to Cabcharge, in the broker’s opinion. The company’s service fee is already falling with the changes in the payments surcharge in Victoria and NSW.
Deutsche Bank upgrades to Hold from Sell, with the stock trading close to target. Target is reduced to $3.35 from $3.50.
COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/5/0
UBS has upgraded to Buy from Hold following significant share price weakness. Price target remains unchanged at $87.
The analysts acknowledge the shares are trading at a premium vis-a-vis peers but given global turmoil and uncertainties, they prefer exposure to the higher quality in the local banking sector, the analysts explain.
Asset quality on the back of rising bad and doubtful debt charges remains their key concern regarding the sector.
COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/2
Credit Suisse observes a turnaround in the first half with reduced downside earnings risk from further margin erosion. This supports earnings, dividend and valuation.
The broker upgrades to Outperform from Neutral and raises the target to $10.50 from $10.00.
CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Neutral from Sell by UBS and Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/0
Caltex had pre-released so no surprises. The company’s priority to invest in growth initiatives to establish longer term earnings growth remains unchanged, UBS notes, but capital management in the form of a buyback will be considered if no opportunities present.
Given Caltex could have returned capital by now, the question is how far ahead management is looking towards growth opportunities. While the competitive landscape looks challenging, UBS believes Caltex is well placed to defend its position and upgrades to Neutral. Target rises to $31.80 from $31.40.
Caltex delivered a half-year result broadly in line with July guidance.
Citi reports the company is set for a capital return towards the end of calendar 2015 – most likely through an off-market buy-back.
The broker bumps up the rating to Buy from Neutral given recent share-price underperformance. Target price falls to $33.51 from $35.88.
DRILLSEARCH ENERGY LIMITED ((DLS)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/0
Drillsearch’s FY15 result outpaced UBS’s forecast by a substantial clip (almost double), despite an 11% fall in production and 35% slump in revenue, as hedging gains and tax benefits conspired to lift earnings.
UBS described the result as “living within its means” as Drillsearch largely managed to dodge the oil-price bullet. Increased impairments hit at the net-profit level.
FY16 production and capital-expenditure guidance was unchanged. UBS bumps up its near-term production outlook on the back of planned wet gas field connections.
Target price falls to 90c (a 10% discount to valuation) from $1.20, reflecting recent oil price weakness. Earnings per share forecasts rise 12.9%, 28.4% and 90.8% for FY16, FY17 and FY18.
UBS upgrades to Buy from Neutral to reflect recent share-price weakness, forward hedging, and growth prospects from wet fields, attractive Cooper Basin prospects and acquisition target prospects (Beach Energy ((BPT)) may have Drillsearch in its sights).
EVOLUTION MINING LIMITED ((EVN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/1/0
Evolution’s result was in line with Macquarie, although cash flow generation and net cash were better than the broker expected. FY16 production and cost guidance are in line with forecasts.
The Cowal resource update showed more ounces but at a lower grade than Macquarie had assumed. This means a lower production rate but a longer life. The broker has lifted forecast earnings as a result, and its target to $1.15 from $1.10. Upgrade to Outperform.
FANTASTIC HOLDINGS LIMITED ((FAN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/1
Fantastic’s second half built on a solid first half to provide a much better FY15 result, roughly in line with Macquarie’s forecast. Sales momentum built throughout the year and benefitted from new products and improved customer service and marketing.
There is more room to move on improvements, Macquarie suggests, which will offer an offset to A$ headwinds. Valuation is not demanding so the broker upgrades to Outperform. Target rises to $2.60 from $2.40.
FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/1
FY15 results and FY16 guidance were better than Morgans expected. Importantly the company is witnessing positive momentum in leisure travel.
Morgans believes the online structural threat is overplayed as the company’s business has evolved accordingly. Rating is upgraded to Add from Hold. Target is raised to $41.50 from $40.85.
GPT ((GPT)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/2
The stock has sold off 8.5% in the past two weeks despite posting one of the stronger results in the A-REIT space, Credit Suisse observes.
The broker envisages potential for both macro and micro support from the recent rally in bond yields.
The rating is upgraded to Neutral from Underperform and $4.59 target is retained.
HEALTHSCOPE LIMITED ((HSO)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/4/0
Healthscope’s full-year result met Citi’s estimates and consensus. Margins outpaced expectations and Citi says the sale of the domestic pathology business for $105m in July will remove a drag on margins going into FY16.
The sale will also free up funds for expansion, which is running to schedule and Citi expects Healthscope’s ambitious capital expenditure plan will allow it to grow above market for two-to-three years.
Target price rises to $2.59 from $2.17 and the broker upgrades to Neutral from Sell, given recent share price weakness.
INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/7/1
IAG’s result fell short of Macquarie’s forecast, largely due to increased NZ earthquake claim reserves. Gross written premium growth was at the bottom of the target range and FY16 growth has been downgraded to flat from slightly positive.
The broker notes incorporating the lower margin Wesfarmers insurance business dragged down group margins, but believes acquisition synergies will kick in in FY16. Macquarie’s margin forecast now sits at the top of the range, which supports an upgrade to Neutral from Underperform. Target rises to $5.50 from $5.40.
ISENTIA GROUP LIMITED ((ISD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/0
iSentia’s result beat the prospectus but was in line with Macquarie. A&NZ revenue per client drove the beat while the rollout of Mediaportal in Asia proved distracting for the sales team, the broker notes. FY16 guidance is in line.
The company will acquire leading content marketing business King Content. The broker sees a full price but believes the acquisition makes strategic sense. The industry is attractive and iSentia boasts a solid growth outlook, Macquarie notes. Upgrade to Outperform. Target rises to $3.97 from $3.81.
MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Equal-weight from Underweight by Morgan Stanley and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/2/2
FY15 margins surprised Morgan Stanley and with more assured FY16 guidance the broker upgrades to Equal-weight from Underweight.
Top line growth was disappointing in FY15 and therefore the broker considers the plus 5.5% FY16 growth target a tad bullish.
Target is raised to $2.15 from $1.85. Industry view: In-Line.
FY15 results were ahead of Deutsche Bank’s forecasts. Underlying gross margin expansion surprised the broker with a further 30 basis points expected in FY16.
The broker upgrades FY16 and FY17 forecasts by 10% and 14% respectively. Rating is upgraded to Buy from Hold. Target is raised to $2.53 from $2.30.
MANTRA GROUP LIMITED ((MTR)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0
FY15 results were ahead of UBS. Industry tailwinds featured with revenue growth in resorts of 5.9% highlighting the leverage to a pick up in domestic leisure and international inbound travel.
The broker considers FY16 guidance for 9-16% earnings growth conservative.
While CBD weakness in Perth, Darwin and Brisbane may drag, UBS suspects the portfolio will more than make up for this with momentum in tropical Queensland as well as Sydney and Melbourne.
Rating is upgraded to Buy from Neutral. Target edges down to $3.84 from $3.85.
M2 TELECOMMUNICATIONS GROUP LIMITED ((MTU)) Upgrade to Add from Hold by Morgans .B/H/S: 2/3/0
M2 Group outpaced Morgans’ estimates and delivered strong guidance, earning a headlined Buy recommendation.
The broker says M2 is both a growth and value story: FY15 profit jumped 23% and FY16 growth is tipped at 30-45%; and recent share-price weakness has opened a window for entry.
Morgans notes the currency risk from NZ operations has been hedged and upgrades to Add from Hold. Target price steady at $10.50.
NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/2/1
Nine Entertainment’s full-year result met recently downgraded guidance but fell about 2.5% short of consensus and Credit Suisse’s forecasts.
The 9.2c dividend exceeded the broker’s 8.4c estimate and Nine restated its 80%-100% payout ratio target (fully franked).
The company announced it would seek shareholder approval to increase the buyback to 20% of share capital.
Credit Suisse says Nine’s earnings are starting to stabilise as monetisation of online viewing supports TV advertising, and given the supportive sport and news platforms.
The broker upgrades to Outperform from Neutral believing the stock looks cheap on an earnings multiple of 5.9x and yield of 9%. CS notes offshore interests have been circling the industry and Nine could be a target.
Target price is shaved to $1.80 from $1.90. Earnings assumptions include a $125m buyback.
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/2/0
FY15 profit was below Citi’s estimates. The broker downgrades FY16 profit forecasts by 25% and FY17 by 10%, largely because of a weaker outlook for energy markets in both gas and electricity.
While confident Origin can lever up APLNG to mend credit metrics in a low oil price environment, the broker is aware of the risk that, if it cannot convince investors, then it will end up in the “must raise equity” basket.
Rating is upgraded to Buy from Neutral. Target is raised to $9.79 from $9.56.
OIL SEARCH LIMITED ((OSH)) Upgrade to Neutral from Sell by Citi .B/H/S: 6/2/0
First half profit was higher than Citi expected. Production costs were lower. The broker believes the company is doing well in controlling what it can in a low oil price environment.
Given market weakness Citi now considers the stock fair value at a US$70/bbl long-term oil price. Relative to peers the broker considers the market is currently paying near full value for the LNG expansion.
Rating is upgraded to Neutral from Sell. Target is raised to $6.42 from $6.01.
PACIFIC BRANDS LIMITED ((PBG)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Overweight from Neutral by JP Morgan .B/H/S: 2/4/0
Pacific Brands’ result delivered on recently upgraded guidance, which had surprised Macquarie at the time. The broker thought guidance might imply a resumption of dividends, but this will come at the next interim.
Despite Macquarie’s surprise at the FY15 guidance upgrade, FY16 guidance has also surprised materially, as undies and towels continue to fly off the shelves. The broker contemplated a rating upgrade last time but remained cautious, but now has shifted to Neutral. There remains risk around pricing negotiations with retailers, so no Outperform just yet.
Target rises to 45c from 42x.
Reported FY15 financials were in-line but JP Morgan analysts believe a bottom has now been reached in terms of earnings before interest and taxes, EBIT. Despite ongoing challenges, the future should once again offer prospects for “growth”, in the analysts’ view. Hence the upgrade to Overweight from Neutral.
Iconic brands Bonds and Sheridan are performing, but the wholesale channel is battling FX headwinds, point out the analysts. They anticipate no quick change in these dynamics. Price target 50c. Estimates have been raised. Supporting the upgrade is the fact JP Morgan analysts see a clear line in the sand as far as valuation support goes for this stock.
PACT GROUP HOLDINGS LTD ((PGH)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/0
Pact’s result was a touch ahead of Macquarie and there is plenty of capacity on the balance sheet to pursue further acquisitions on top of Jalco, the broker notes. Add in planned cost efficiencies and the company should post solid FY16-17 earnings growth despite ongoing flat conditions in Australia.
Acquisitions will be a key catalyst along with synergies from Jalco and Sulo, Macquarie suggests. On the recent share price fall the broker upgrades to Outperform. Target falls to $4.65 from $4.70.
PERPETUAL LIMITED ((PPT)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/6/0
FY15 profit was ahead of UBS. Net flows are in positive territory and wins on clients are delivering more meaningful funds growth, in the broker’s opinion.
The broker considers the current valuation provides a buffer for the risks at hand and there is upside potential in FY16. Rating is upgraded to Buy from Neutral. Target is lowered to $50.00 from $52.50.
RETAIL FOOD GROUP LIMITED ((RFG)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/1
FY15 results were in line. Guidance is for 20% FY16 profit growth, supported by a full year of contribution from acquisitions.
Morgans believes in the blue sky potential of the company’s international expansion plans and envisages the risk/reward has become favourable.
The broker upgrades to Add from Hold. Target is reduced to $6.40 from $7.86.
RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/2
Credit Suisse found Ramsay Health Care’s full-year result hard to fault as revenue grew, margins expanded and cost-outs mitigated pricing risk.
The broker increases earnings per share estimates 2% beyond FY17 to reflect higher forecast operating margins in Australian hospitals after strong expansion in FY15.
CS upgrades to Outperform from Neutral and the target price rises to $72.15 from $70.75.
Weakness in Ramsay’s French business had been weighing on Macquarie, given there seemed little respite ahead, and with Ramsay valuation is always an issue. But following an in-line result and management commentary, the broker has upgraded to Outperform.
Growth in the Australian and UK businesses is as strong as it has been for some time, the broker notes, and management ensured that it is not in any fight with local insurance companies. France is still tough, but acquisitions, synergies and procurement provide levers for Ramsay to pull to ensure growth, Macquarie believes.
Target rises to $75 from $70.
SCENTRE GROUP ((SCG)) Upgrade to Neutral from Underweight by JP Morgan .B/H/S: 2/3/2
JP Morgan has upgraded to Neutral from Underweight following what proved a financial (interim) performance largely in line with expectations. The stockbroker found it was a solid performance, pointing at continued improvement in operating metrics.
Scentre is selling four lower quality assets but has nevertheless reiterated distribution guidance. Estimates have been lifted. Price target rises to $3.88 from $3.74.
SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Buy from Sell by Citi .B/H/S: 6/1/1
Structural concerns for global steel are at the forefront of Citi’s concerns for the stock. The broker has factored in weak volumes and scrap prices for FY16-18.
The company is seen driving industry change to create value. Rating is upgraded to Buy from Sell with the target raised to $12.20 from $9.90.
While expecting FY16 volumes to remain subdued, Citi suspects US anti-dumping actions, ongoing US economic recovery and US steel production reductions are mitigating the downside risk.
SPARK INFRASTRUCTURE GROUP ((SKI)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/4/1
Spark’s underlying earnings were within 1% of Macquarie but cash flow exceeded expectation. Dividend guidance met expectation. The SA and Vic networks performed strongly, but the focus is on upcoming regulatory resets, the broker notes, with NSW to follow later.
There is material upside to dividends on favourable outcomes, the broker notes. However the Duet ((DUE)) stake is a distraction and a failed strategy, the broker suggests, while other acquisition possibilities such as Transgrid offer questionable value-add. But on a yield of 6.2% and expected dividend upside, Macquarie upgrades to Neutral. Target falls to $1.98 from $2.01.
SPARK NEW ZEALAND LIMITED ((SPK.NZ)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/4/1
Spark NZ’s result was operationally in line with UBS, but the FY15 div and FY16 div guidance exceeded expectations. The company is executing its transformation well so far, but cost-outs are needed to offset otherwise limited near term growth, the broker notes.
Operating momentum appears solid and the dividend supportable, so UBS has less reason to be negative. Upgrade to Neutral. Target rises to NZ$2.85 from NZ$2.30.
SANTOS LIMITED ((STO)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 7/1/0
Credit Suisse has raised its rating on Santos to Neutral from Underperform, expecting Santos will have to do something to solve its current predicament.
The broker says excessive leverage on top of poor investment decisions have conspired to undermine the stock’s foundations, which are now vulnerable to oil price volatility.
CS reckons a takeover is possible but believes the best option for Santos is a raising of about $3bn at roughly $4 per share, which would cause the broker’s valuation to rise. It’s a wait and see game.
SEYMOUR WHYTE LIMITED ((SWL)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0
The FY15 result was better than Morgans expected. The company enters FY16 with a strong order book.
Seymour Whyte is considered one of the better placed infrastructure services stocks, with a strong balance sheet and dividend support.
Morgans considers the valuation undemanding and upgrades to Add from Hold. Target is raised to $1.63 from $1.26.
SOUTHERN CROSS MEDIA GROUP ((SXL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/4/2
Southern Cross Media Group’s full-year results were broadly in line with consensus at an operational level but net profit fell 4% shy. Guidance was cautiously positive given weak past momentum.
CS notes few changes on the media law-reform front and places poor odds on the likelihood of a takeover bid for the company.
The broker lifts earnings forecasts about 3% to 4% across FY16 and FY17 to reflect higher market shares in radio and TV. Rating is upgraded to Neutral from Underperform.
Target price rises to $1 from 90c but is still below the broker’s valuation of $1.11 a share given the stock’s high debt relative to peers and continued structural headwinds in TV broadcasting.
THINK CHILDCARE AND EDUCATION LIMITED ((TNK)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
First half results were above guidance but the company maintains its prospectus forecasts for 2015. Given share price weakness and M&A in the sector Morgans suspects the forecast may be ambitious.
The broker upgrades to Add from Hold, given the share price weakness. Target is reduced to $1.04 from $1.05.
TRANSPACIFIC INDUSTRIES GROUP LIMITED ((TPI)) Upgrade to Buy from Sell by UBS and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/3/0
FY15 results were below UBS forecasts but the balance sheet has become more sound, earnings are re-based after de-leveraging and restructuring, while expectations are low.
As a result, UBS upgrades to Buy from Sell, as the stock has moved far enough for the valuation to be attractive. Target is raised to 80c from 76c.
Transpacific’s underlying profit beat Macquarie but operationally it was in line. The broker expects FY16 trading conditions will remain consistent with FY15.
Cost and pricing initiatives should see Cleanaway continue to grow earnings, while post collections should benefit from a full year of the Melbourne landfill acquisition and cost cuts for Industrials should drive earnings, Macquarie suggests.
The broker believes earnings should return to growth in FY16 and beyond. Upgrade to Outperform, target rises to 82c from 78c.
TRANSFIELD SERVICES LIMITED ((TSE)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Neutral by Citi .B/H/S: 3/2/1
Transfield’s full-year result was in line with Credit Suisse at an operational level but net profit fell shy as depreciation, amortisation and interest took a toll. Margins grew strongly at 7%, slightly outpacing the broker.
Credit Suisse downgrades earnings per share forecasts 28% in FY16, 19% in FY17 and 13% in FY18 to reflect higher interest and tax forecasts. Target price falls to $1.40 from $1.62.
The broker believes valuation is compelling and upgrades to Outperform from Neutral. The stock is trading on a 7.2x FY16 price-earnings multiple and a 15% free cashflow yield and CS says last financial year’s $2 per share offer places a floor under the stock as far as fundamental valuation goes.
FY15 results were at the lower end of guidance and below Citi’s forecasts.
The company has a high level of visibility in that 60% of revenues are contracted. The broker observes this would have been nearer FY15’s 75% but for timing issues on two large contracts, one of which is immigration.
Although much depends on the immigration outcome, Citi believes the risk are being more than discounted, given the defensive nature of the company’s business.
Citi upgrades to Buy from Neutral. Target is lowered to $1.25 from $1.74.
UGL LIMITED ((UGL)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/2/5
UGL’s profit fell short of consensus but earnings were in line with UBS’ forecast. No dividend was declared as expected. The balance sheet is in a better position than feared but there remain risks around certain projects (Ichthys resolution being one) and the market environment remains difficult, the broker notes.
That said, UBS is attracted to UGL’s exposure to recurring maintenance work. On a lower share price the broker upgrades to Neutral, cutting its target to $1.85 from $2.10.
VEDA GROUP LIMITED ((VED)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
FY15 results were in line. The payment of a final dividend of 6c and commitment to interim dividends removes an unnecessary distraction, in UBS’ opinion.
The outlook includes an elevated growth investment profile and this means a modest reduction to the broker’s forecasts.
That said, UBS believes the stock offers good relative value and upgrades to Buy from Neutral. Target is raised to $2.43 from $2.27.
See also VED downgrade.
VIRTUS HEALTH LIMITED ((VRT)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
FY15 results were in line and held few surprises for UBS after the June downgrade. The broker observes the company held its market share.
Subdued domestic growth of 1.5% is forecast with the offshore expansion increasingly important.
UBS upgrades to Buy from Neutral. Target is raised to $7.50 from $7.41.
WESTFIELD CORPORATION ((WFD)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Sell by Citi .B/H/S: 2/3/2
First half cash flow was ahead of UBS estimates. Portfolio metrics continue to be attractive. Net property income was below expectations because of the timing of asset sales and FX.
In the broker’s view the valuation cannot be ignored and the rating is upgraded to Buy from Neutral. Target lifts to $11.00 from $10.20.
First half results were slightly below Citi’s estimate, with lower rent partly offset by lower tax and higher development earnings.
The broker maintains the company has a good business, with near-term headwinds and medium-term tailwinds, and the stock is now more attractively priced.
Citi upgrades to Neutral from Sell. Target is raised to $9.43 from $8.26.
ACONEX LIMITED ((ACX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0
Aconex ‘ result was in line with Macquarie but a beat on the prospectus, featuring delivery across all revenue lines. Currency movements helped, the broker notes, and international revenues are gaining scale while A&NZ remains consistent.
Macquarie sees a quality business model and notes major new enterprise agreements have been signed at a far more rapid rate than expected, but it also sees a stock that has rallied 100% in the nine months since listing, into full value territory. Downgrade to Neutral, $4.50 target retained.
BORAL LIMITED ((BLD)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/4/1
FY15 fell short of Citi’s forecasts and the FY16 outlook is disappointing. The analysts suggest many things need to go right to maintain earnings at a steady rate.
The broker asserts the stock is trading well above long-term valuation, although the appeal of operating leverage that is yet to materialise is not overlooked.
Citi downgrades to Sell from Neutral. Target is lowered to $5.45 from $6.26.
CHARTER HALL GROUP ((CHC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/2
FY15 results were in line with Credit Suisse and FY16 guidance appears conservative. The broker suspects FY15 may be the peak in growth rates.
FY16 is again expected to deliver around 8.1% before growth slows markedly. While funds growth should remain strong in absolute terms it is percentage growth that matters to the company’s earnings, in terms of high-margin transaction fees.
Hence, rating is downgraded to Neutral from Outperform and the target to $4.50 from $4.90.
COVER-MORE GROUP LIMITED ((CVO)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0
FY15 results were in line with UBS. Management noted significant momentum both domestically and offshore.
While premium growth is likely to feature UBS factors in more conservative assumptions for insurance margins in coming years. The broker downgrades to Neutral from Buy and raises the target to $2.49 from $2.30.
HUON AQUACULTURE GROUP LIMITED ((HUO)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/1/0
Huon Aquaculture Group’s full-year result trickled in at the bottom end of consensus as solid cost management took the edge of price-squeeze-induced revenue declines.
CS expects strong growth in turnover and more supportive industry conditions but says weaker pricing forecasts in the wholesale market have triggered a cut in earnings estimates to reflect sustained revenue pressure.
CS has faith in Huon’s long-term outlook but, with earnings per share falling, the company is trading at an FY16 price-earnings multiple of 20x, based on CS estimates.
The broker downgrades to Neutral from Outperform and the target price falls to $3.30 from $4.60.
LEGEND CORPORATION LIMITED ((LGD)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
Legend Corporation’s FY15 met Morgans’ estimates but a difficult trading outlook has triggered a ratings downgrade from Add to Hold.
The broker says FY growth was sluggish but a solid net debt position supports Legend’s acquisition strategy.
Morgans’ FY17 profit forecast falls 3.3% to reflect the tougher operating environment. Target price eases to 28c from 30c.
NIB HOLDINGS LIMITED ((NHF)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/4/1
FY15 results were slightly below Credit Suisse’s forecasts. The broker had recently upgraded to Neutral on an expected recovery in the arhi business. This has occurred but other divisions are now expected to be a drag on earnings in the near term.
The premium in the stock to small caps is currently not justified in Credit Suisse’s view. Rating is downgraded to Underperform from Neutral. Target is lowered to $3.20 from $3.65.
OBJECTIVE CORPORATION LIMITED ((OCL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
FY15 results were messy and well below forecasts. Morgans acknowledges cash flow told a different story, up 38%, with a higher dividend as well.
This tells a better story but, with strength in the share price, the broker downgrades to Hold from Add. Target is reduced to $1.55 from $1.66.
SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/1/0
First half results were in line with prospectus forecasts. UBS retains estimates for FY15-17 but lifts the outer years.
Despite a positive view on the growth outlook the broker considers the stock is fairly valued at current levels and downgrades to Neutral from Buy. Target is raised to $4.00 from $3.75.
VEDA GROUP LIMITED ((VED)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/1/0
Veda’s FY15 result was in line with Macquarie but FY16 guidance came in below expectation on higher staff, depreciation and amortisation costs. The problem is the costs of delivering comprehensive credit reporting are beginning to build while the benefits of CCR remain a long way off, with timing uncertain, the broker notes.
CCR will provide a big earnings boost when it arrives, but the broker does not believe the market is ready to price that in at this stage. A re-rating is thus unlikely for the foreseeable future, hence Macquarie downgrades to Neutral. Target falls to $2.35 from $2.63.
See also VED upgrade.
Webjet Limited ((WEB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0
The FY15 result was largely pre-released and the main focus is on transaction value. Year to date growth is positive and Credit Suisse is pleased with the core business.
With the stock trading close to a market multiple and limited near-term catalysts the broker downgrades to Neutral from Outperform. Target is raised to $4.02 from $3.90.
Broker Recommendation Breakup
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
Positive Change Covered by > 2 Brokers
Negative Change Covered by > 2 Brokers
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