Australia | Sep 07 2015
This story features ABACUS PROPERTY GROUP, and other companies. For more info SHARE ANALYSIS: ABP
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 31 to Friday September 4, 2015
Total Upgrades: 16
Total Downgrades: 15
Net Ratings Breakdown: Buy 44.96%; Hold 41.79%; Sell 13.25%
Last week essentially marked the finish for the local August reporting season in the midst of ongoing downward pressure on the share market. China concerns, Fed angst and local performances that were -on most accounts- rather uninspiring have kept buyers on the sidelines, allowing sellers and traders to push the ASX200 ever so closer to the 5000 mark.
For the week ending 4 September, 2015, FNArena registered a rather balanced mix of stockbroker upgrades and downgrades for individually listed stocks. It was 16 “up” versus 15 “down” and through the potpourri one observation stands out: Westpac received two upgrades during the week. It doesn’t happen often, and it has been a while.
Overall, resources stocks continue to dominate the picture, in particular on the negative side. Beadell Resources received two downgrades during the week, but so did Regis Healthcare. National Australia Bank was downgraded to Neutral too, but more so because the stockbroker advocates a switch into the new sector favourite, Westpac.
Target price changes look enormous, but this merely reflects the impact from yet more downgrades to commodities prices forecasts. Regis Healthcare is the only one that stands out on the positive side with an 11% revision to the consensus price target.
Earnings projections offer a similar view, with the added observation that, apart from Woolworths, resources majors BHP Billiton and Rio Tinto are also inside the Top Ten for the week with 6% and 7% negative revisions respectively. It would appear that sector remains beholden to ongoing macroeconomic concerns and uncertainties which are being reflected every time analysts update their price forecasts.
ABACUS PROPERTY GROUP ((ABP)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/0
FY15 results were ahead of Citi’s expectations, because of additional income from recent acquisitions and gains from asset trading.
Citi upgrades forecasts for FY16-18 by 14-24%. With the recent pull back in the share price the broker upgrades to Neutral from Sell. Target is raised to $2.96 from $2.73.
ACONEX LIMITED ((ACX)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0
Since reaching $4.40 in early August the share price has declined 14%. UBS has seized the opportunity and upgraded to Buy from a Neutral rating.
Contract momentum is increasingly apparent. The broker flags the company’s statement that 87% of guided first half revenue is already in the bag. Target is steady at $4.30.
ANSELL LIMITED ((ANN)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/5/0
Ansell’s decision to undertake a US$100m buy-back suggests the board and management consider the stock undervalued, and Deutsche Bank agrees.
With recent weakening in key Asian cost currencies FX may prove less of a headwind than feared. Deutsche Bank upgrades to Buy from Hold. Target is raised to $24.00 from $21.70.
CROWN RESORTS LIMITED ((CWN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/4/0
Credit Suisse upgrades to Neutral from Underperform, given the recent fall in the share price. The stock is now approaching fair value, in the broker’s opinion. A $12.60 target is maintained.
The broker considers the outlook for VIP is positive as Crown has become more competitive, taking advantage of tax adjustments in those jurisdictions.
Macau continues to weigh on the stock. Although expectations are now more conservative, a strong earnings uplift is expected with the first full year of Studio City.
FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/3
The sustainability of the company’s cost cutting appears, on face value, to be a stretch but on closer inspection Morgan Stanley finds it is viable. This should provide for improved margin and cash flow.
The equity view remains tightly connected to the commodity view but the risk/reward is now skewed more favourably, in the broker’s opinion.
Morgan Stanley is now more confident to boost the rating to Overweight from Equal-weight. Industry View is In-Line. Target is raised to $2.70 from $2.45.
FREEDOM FOODS GROUP LIMITED ((FNP)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
FY15 results were weaker than expected, impacted by commissioning of new equipment and investment in new products. Morgans downgrades forecasts dramatically but expects strong earnings growth will resume in FY16.
The company should benefit from high-growth sectors such as dairy and allergen-free food and beverages. The growth profile should also benefit from the commissioning of the UHT facility at Ingleburn.
Morgans upgrades to Add from Hold. The price target is raised to $3.40 from $3.10.
IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0
Citi believes the stock now offers an attractive yield and reasonable earnings growth.
If there is no additional fall-out from the recent issues surrounding compliance then the stock is expected to perform reasonably well.
Acquisitions or internal initiatives are probably needed for double digit growth. Citi forecasts earnings growth of 6-8% over the next three years.
The broker lifts the rating to Buy from Neutral. Target is raised to $10.00 from $9.80.
See also IFL downgrade.
LYNAS CORPORATION LIMITED ((LYC)) Upgrade to Neutral from Underweight by JP Morgan .B/H/S: 0/2/0
JP Morgan analysts have -again- lowered price forecasts for commodities. Lynas is the sole stock under coverage that has received a rating upgrade on the back of the sector update.
Rating moves to Neutral from Underweight. Target remains at 4c.
MEDUSA MINING LIMITED ((MML)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/2/0
FY15 results were broadly in line with Macquarie. The broker believes the impairment in the results is foreshadowing a significant reduction in resources and reserves and any material reduction in mine life would be negative for valuation.
An updated estimate is expected in the September quarter. The company has achieved a turnaround and consistently met guidance. FY16 is expected to be a more positive year, with the company expecting a 20-30% increase in gold production.
Macquarie upgrades to Neutral from Underperform. Target falls to 53c from 54c.
MYER HOLDINGS LIMITED ((MYR)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/4
FY15’s 21% decline in profit was a sideshow, in Citi’s opinion. Importantly, the company announced a dilutive capital raising. Myer will place more emphasis on its CBD stores and branded products.
Still, Citi observes a lack of transparency around the drivers of sales and trends are weak. Concessions remain the key, in the broker’s opinion, and the company has signalled these will be allocated more floor space.
Citi remains cautious about a recovery and reduces earnings forecasts for FY16 by 35%. The rating is upgraded to Neutral from Sell. Target is lowered to $1.10 from $1.25.
See also MYR downgrade.
PALADIN ENERGY LTD ((PDN)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0
Citi has upgraded the stock to Buy from Neutral/high risk and raised the price target to 39c from 30c.
FY15 results were slightly lower than the broker had expected, mainly due to lower uranium sales and price. Cost cuts have been flagged by the new CEO, leading to small increases in FY16 and FY17 earnings forecasts.
See also PDN downgrade.
PERPETUAL LIMITED ((PPT)) Upgrade to Add from Hold by Morgans .B/H/S: 3/5/0
Morgans has upgraded the stock to Add from Hold and raised the price target to $52.21 from $50.20.
The company’s FY15 results were above the broker’s expectations. FY16 and FY17 forecasts have been lifted by 2% and 1% respectively. Morgans believes the stock is now good value at current trading multiples.
TZ LIMITED ((TZL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
FY15 results were better than expected, with the reported loss halving versus FY14. Morgans suspects the company is on the cusp of earnings profitability on FY16 forecasts.
A number of catalysts for a re-rating include a cash injections from the sale of Adam Parcel lockers, currency upside on a weaker Australian dollar and, if all goes to plan, profitability.
Rating is upgraded to Add from Hold. Target is steady at 11c.
UGL LIMITED ((UGL)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/3/4
FY15 earnings were in line with Citi but profit was materially below. There were no changes to 2016 guidance, with revenue to be flat and margins up to 3.0% from 2.5%.
Citi upgrades to Neutral from Sell on the back of the early progress being made to reposition the business. The broker cautions that this does need to be considered in the context of a challenging market backdrop.
Target is raised to $1.94 from $1.73.
WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/2/1
Macquarie has analysed the rise of online banking and the subsequent decline in branch banking, noting that across the sector 20% of post codes account for 60% of branch demand and 40% account for 90%, yet the majors have 51% of their branches in the 20% of post codes and 66% in the 40%.
There is thus substantial opportunity for branch closures, and cost savings, the broker suggests. Of the majors, Westpac offers the greatest upside from effectively managed closures. Macquarie thus upgrades Westpac to Outperform. Target rises to $37.97 from $36.64.
Westpac has been upgraded to Outperform from Neutral by Credit Suisse with a price target of $35 (was $34).
Credit Suisse elevates Westpac to the top of its major bank preferences, expecting it will lead the industry in structural productivity initiatives.
Major bank earnings estimates have been upgraded 1-2% over the outer years to reflect a more resilient net interest margin.
BEADELL RESOURCES LIMITED ((BDR)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/1
Beadell has downgraded guidance for the second half and suggested its long-term production will be lower than expected.
No gold from the Duckhead deposit is expected in the second half of 2015. Delays to third-party approval for mining stage 3 will defer the expected 20,000 ozs into the first quarter of 2016.
Macquarie doubles its forecast loss for 2015. Rating is downgraded to Underperform from Neutral and target to 11c from 15c.
Citi has downgraded the stock to Neutral/high risk from Buy, and raised the target price to 19c from 16c.
A First half loss was in line with the Citi’s expectations, mainly due to lower gold sales.
Cash reserves have fallen to $22m from $73m in Dec 14, but debt and equipment lease restructuring should enable debt of $87m to be repaid over the next three years in the broker’s opinion.
GWA GROUP LIMITED ((GWA)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/0
Since late June the share price has risen 19% and UBS notes over this time a messy FY15 result and trading update have been delivered.
Rating is downgraded to Neutral from Buy. Target is steady at $2.62.
A lift in renovation activity is expected to support earnings in FY16. Asset sales mean the company is more of a pure play on the domestic renovation market.
UBS remains concerned about the disparity between underlying and statutory earnings. Risk remains in terms of the Gainsborough turnaround, FX and market share.
HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 5/0/3
FY15 results were in line but Macquarie found the quality low. The exceptional sales growth in the second half is expected to be hard to replicate.
Further tailwinds from the housing cycle could continue but the challenges facing the domestic consumer are expected to weigh on the discretionary retail sector more broadly.
Macquarie downgrades to Underperform from Neutral. Target falls to $4.36 from $4.53.
IOOF HOLDINGS LIMITED ((IFL)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/3/0
IOOF’s result was in line with UBS, and growth was split evenly across organic and acquisitive contributions. While the PwC result didn’t reveal anything too untoward, management is not sure whether a full ASIC investigation may yet follow.
What is clear is that the PwC review will result in more expenses as IOOF upgrades its IT. UBS has trimmed forecast earnings and on given ongoing risk, downgraded to Neutral. Target falls to $9.40 from $10.75.
See also IFL upgrade.
LOGICAMMS LIMITED ((LCM)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
FY15 results were in line with guidance but revenue was below Morgans’ estimates. Sector uncertainties are expected to continue and expectations are lowered accordingly.
Hydrocarbons now reflect 65% of revenue. The shorter term, higher frequency, nature of the company’s services reduces volatility but the broker believes it makes long-term forecasts difficult.
Morgans downgrades to Hold from Add given the risks and lowers the target to 83c from $1.04.
MYER HOLDINGS LIMITED ((MYR)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/2/4
FY15 results disappointed Credit Suisse. There was no final dividend, instead a $220m capital raising was announced. The changes in strategy are larger than what the broker anticipated.
The company is chasing the high-value customer and Credit Suisse suspects it will take several years for the impact to become apparent. Rating is downgraded to Underperform from Neutral. Target is steady at $1.20.
See also MYR upgrade.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/7/0
National Australia Bank has been downgraded to Neutral from Outperform. Price target tumbles to $33 from $37.50.
Credit Suisse believes the successful restructuring is approaching its conclusion and the stock has re-rated versus its peers as a result. The broker upgrades earnings estimates by 1-2% for the outer years, to reflect a more resilient net interest margin.
OZ MINERALS LIMITED ((OZL)) Downgrade to Underweight from Neutral by JP Morgan .B/H/S: 5/2/1
JP Morgan analysts have -again- lowered price forecasts for commodities. Direct impact on OZ Minerals is a downgrade in rating to Underweight from Neutral.
Price target drops to $3.00 from $4.60. Estimates have been lowered.
PALADIN ENERGY LTD ((PDN)) Reinstate coverage with a Neutral rating by JP Morgan .B/H/S: 3/3/0
FY15 results were broadly in line. JP Morgan notes a substantial turnaround in the latest quarter and the expectations for the company to be free cash flow neutral in FY16.
Ultimately the stock will be driven by the uranium price and JP Morgan suspects excess global inventory will keep a lid on prices in the near term.
The broker resumes coverage with a Neutral rating and 24c target.
See also PDN upgrade.
REGIS HEALTHCARE LIMITED ((REG)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0
FY15 results were stronger than Macquarie expected. Also positive was the ramp up in developments. The broker highlights the company’s discipline on acquisitions.
With the stock now in line with valuation Macquarie downgrades to Neutral from Outperform. Target is raised to $6.00 from $5.40.
Morgans has downgraded the stock to Hold from Add, and the price target rises to $6.00 from $5.43.
Regis Healthcare’s FY15 results were ahead of the broker’s expectations. Morgans has increased its FY16 earnings estimate by 1.6% and FY17 estimate by 1.7%.
Downside risk could come from lower occupancy levels than currently being achieved.
REGIS RESOURCES LIMITED ((RRL)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 4/3/1
Regis Resources has been downgraded to Neutral from Overweight following yet more downgrades to price forecasts for commodities.
Estimates have been cut and JP Morgan’s price target falls to $1.40 from $1.65.
SANDFIRE RESOURCES NL ((SFR)) Downgrade to Neutral from Overweight by JP Morgan .B/H/S: 4/3/1
JP Morgan analysts have -again- lowered price forecasts for commodities. As a flow-on impact, Sandfire Resources’ rating has been pulled back to Neutral from Overweight.
Target drops to $4.35. Estimates have been lowered.
WESTERN AREAS NL ((WSA)) Downgrade to Underweight from Neutral by JP Morgan .B/H/S: 6/0/1
Western Areas’ rating has been downgraded to Underweight from Neutral on the back of -yet again- downgrades to price forecasts for commodities.
Remarkable is that JP Morgan’s price target has more than halved; to $2.00 from $4.20 prior. Estimates have been cut.
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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For more info SHARE ANALYSIS: ABP - ABACUS PROPERTY GROUP
For more info SHARE ANALYSIS: ANN - ANSELL LIMITED
For more info SHARE ANALYSIS: CWN - CROWN RESORTS LIMITED
For more info SHARE ANALYSIS: FMG - FORTESCUE METALS GROUP LIMITED
For more info SHARE ANALYSIS: FNP - NOUMI LIMITED
For more info SHARE ANALYSIS: GWA - GWA GROUP LIMITED
For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED
For more info SHARE ANALYSIS: IFL - INSIGNIA FINANCIAL LIMITED
For more info SHARE ANALYSIS: LCM - LOGICAMMS LIMITED
For more info SHARE ANALYSIS: LYC - LYNAS RARE EARTHS LIMITED
For more info SHARE ANALYSIS: MML - MEDUSA MINING 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: OZL - OZ MINERALS LIMITED
For more info SHARE ANALYSIS: PDN - PALADIN ENERGY LIMITED
For more info SHARE ANALYSIS: PPT - PERPETUAL LIMITED
For more info SHARE ANALYSIS: REG - REGIS HEALTHCARE LIMITED
For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED
For more info SHARE ANALYSIS: SFR - SANDFIRE RESOURCES LIMITED
For more info SHARE ANALYSIS: TZL - TZ LIMITED
For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION
For more info SHARE ANALYSIS: WSA - WESTERN AREAS LIMITED