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Weekly Recommendation, Target Price, Earnings Forecast Changes

Weekly Reports | Aug 08 2016

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 August 1 to Friday August 5, 2016
Total Upgrades: 10
Total Downgrades: 13
Net Ratings Breakdown: Buy 40.32%; Hold 45.02%; Sell 14.66%

As the share market rally somewhat paused, the gap between stockbroker downgrades and upgrades instantaneously narrowed. For the week ending Friday, 29th July FNArena registered 13 downgrades for individual ASX-listed stocks versus ten upgrades.

Promoter of Australia's education overseas, Navitas, was the sole receiver of two downgrades during the week. This was the first week financial reports from local companies made their presence genuinely felt. Seven West Media received one downgrade and one upgrade post its financial results.

Downer EDI's financial results saw the consensus target lift by no less than 27.5%. Downer tops the table for positive amendments to price targets for the week, beating mostly commodities companies such as Karoon Gas, Fortescue Metals, Santos and South32. Suncorp is on the list too, as is Woolworths.

There were some noticeable negative changes to targets too, with Mantra Group (-5%) leading the pack, followed by AWE Ltd and Virgin Australia.

The positive news continued with sizeable increases to profit estimates for GUD Holdings (+15%), Tabcorp (+13.2%), Independence Group (+12.13%), Suncorp (+9.9%), and others.

However, negative adjustments to profit forecasts for a number of companies were of a much larger size. The hardest hit was Virgin Australia (-352%), with equally big negative adjustments for Vitaco Holdings (-53%), APA Group (-29%), Seven West Media (-28%), BWP Trust (-27%), and others.

Remarkable is also that BHP Billiton, after weeks on the positive side of this table, finds itself again on the negative side for the second week in a row.

The reporting season is about to kick into a higher gear. Judging by the preliminary trends in the first week of the month, many more changes should become apparent as more companies unleash their financial details upon anxious investors.

Thus far, the balance seems to favour more positive surprises, but it's early days.

Upgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0

Low interest rates, leading to higher disposable incomes and lower financing costs, suggest to UBS 2016 is likely to be a record year for sales of new and used cars. This means strong organic growth for Auto Holdings, augmented by assumed acquisitions.

It is enough to offset expected further weakness in the Refrigerated Logistics business, hence UBS upgrades to Buy. Target rises to $4.63 from $4.32.

DOWNER EDI LIMITED ((DOW)) Upgrade to Buy from Lighten by Ord Minnett .B/H/S: 4/2/0

FY16 results were stronger than expected and backed up by strong second half cash flow, which suggests to Ord Minnett the quality of the result was high.

Near term catalysts are in the three large rail contracts likely to be awarded in the first half. The broker believes the company is the front runner. Ord Minnett upgrades to Buy from Lighten on the better-than-expected outlook. The broker raises the target to $5.12 from $3.25.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/4/1

Morgan Stanley favours quality rather than leveraged miners, given the potential for volatility and is moving to overweight on resources for its model portfolio.

Fortescue Metals is upgraded to Equal-weight from Underweight as it fully captures the spot price and the broker will await a pull back to re-visit its view. Target is raised to $4.05 from $2.70. Sector view moves to Attractive from In-Line.

HENDERSON GROUP PLC. ((HGG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/3/0

First half results were below forecasts but signalled to Credit Suisse that the operating environment is not deteriorating further and suggest that previous fund flow assumptions were too bearish.

The broker finds the current valuation appealing and upgrades to Outperform from Neutral. Target is raised to $4.50 from $4.05.

MINERAL DEPOSITS LIMITED ((MDL)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/0/0

Ord Minnett expects operational consistency to improve and with an increase in cash flow and supportive market conditions raises its rating to Speculative Buy from Hold.

The broker notes the balance sheet continues to be challenged but rising prices and operational improvements reduce the risk. The broker believes investor confidence will recover if the company can deliver two quarters of improved performance. Target is raised to 70c from 29c.

OIL SEARCH LIMITED ((OSH)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/2/1

UBS believes it increasingly likely that a co-ordinated LNG project in PNG will be approved, with gas from PNG LNG and Papua LNG feeding into two new 4mtpa trains.

While there are challenges to overcome, the second half of FY18 is considered the likely timing of expansion approval.

UBS upgrades to Neutral from Sell, factoring in a faster rebound in oil prices and lower production costs in PNG LNG as well as a re-assessment of the timing, structure and cost of LNG expansion.The broker raises the target to $7.45 from $6.55.

SOUTH32 LIMITED ((S32)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/4/1

Morgan Stanley favours quality rather than leveraged miners, given the potential for volatility and is moving to overweight on resources for its model portfolio.

South32 has traded ahead of expectations throughout the year and, based on continued productivity gains, the broker upgrades to Overweight from Equal-weight. Target is $2.25. Sector view moves to Attractive from In-Line.

SANTOS LIMITED ((STO)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 5/1/0

While the market remains sceptical, Morgan Stanley believes that under the new CEO, a long term cost-out and maintenance capex reduction story is beginning for Santos. Significant opportunities are available in capex in particular, the broker suggests, which has to date hindered the capacity to pay down debt.

Morgan Stanley estimates Santos' share price implies a long term oil price of US$60/bbl, in line with peers. But among peers, Santos has the greater cost reduction opportunity. The broker thus upgrades to Overweight and lifts its target to $5.96 from $4.59, while conceding oil price downside risk.

SEVEN WEST MEDIA LIMITED ((SWM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/2

FY16 earnings were down 10.7% with the company guiding to FY17 declining by 15-20%. Macquarie downgrades FY17 estimates by 3.9% and FY18 by 0.7%.

 Macquarie recently downgraded the stock on the basis that the challenging TV ad revenue and cost pressures would weigh on the outlook.

While this remains the case, the broker observes the significant sell off in the share price has meant the investment case is now more balanced. Rating is upgraded to Neutral from Underperform and the target lowered to 90c from $1.00.

See also SWM downgrade.

WOOLWORTHS LIMITED ((WOW)) Upgrade to Add from Hold by Morgans .B/H/S: 1/2/3

Morgans upgrades Woolworths to Add from Hold. Target rises to $25.00 from $21.18. The broker expects it may be another 6-12 months before sales growth kicks in and suggests some patience is required.

The broker observes the business faces considerable implementation risks over the next 2-3 years but believes the market is being overly pessimistic on the outlook for Australian food retailing. Moreover, Morgans suspects margins here may not decline as much for the industry structure is very different compared with overseas.

Downgrade

AWE LIMITED ((AWE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

Reserves reports from operator Origin Energy ((ORG)) imply a 30% cut to BassGas reserves, as a result of lower reservoir performance from recently drilled wells. Macquarie believes the changes bring forward the end of production to mid 2021, two years earlier than previously expected.

The broker downgrades AWE to Neutral from Outperform and still envisages FY17 will be a consolidation year following a number of asset sales. Target is reduced to 90c from $1.00.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/3/2

Macquarie revises earnings forecasts for the regional banks largely as a result of margin pressure and slower growth expectations.

Incorporating current relative valuations the broker downgrades to Underperform from Neutral and reduces the target to $9.25 from $9.50.

FAIRFAX MEDIA LIMITED ((FXJ)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 4/2/0

Deutsche Bank downgrades to Hold from Buy given share price strength and on the back of a recently decline in property listing volumes in the capital cities.

 The broker attributes this decline in some extent to the federal election, exacerbated by tough comparables.

Target is raised to $1.05 from $1.00.

HOTEL PROPERTY INVESTMENTS ((HPI)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/1/0

As part of its review of the real estate investment trust sector Ord Minnett lifts price targets on average by 6%.

The broker reduces its rating to Hold from Accumulate for Hotel Property as the stock has recently outperformed. the broker raises the target to $2.85 from $2.59.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/3/2

Ord Minnett has reviewed its thesis on the stock, noting sales growth and margin expansion are the key drivers. There is also the prospect of capital management.

Yet the recent share price performance makes the valuation less appealing and the broker downgrades to Hold from Accumulate. The $4.75 price target is retained.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Underperform from Outperform by Credit Suisse .B/H/S: 0/3/3

FY16 production was broadly in line and FY17 guidance disappointing for Credit Suisse. The broker updates its model for the production figures and guidance, accelerated Bollinger decline and the recent capital raising.

Given the strong appreciation in the share price, Credit Suisse downgrades to Underperform from an Outperform rating and raises the target to $3.70 from $3.60.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0

The share price has surged through the target price and Morgans downgrades to Hold from Add. The broker expects no material negative surprises in the FY16 result, given solid growth in first half toll revenue has been reported.

The broker continues to be attracted to the growth in the distribution and M&A potential. Target rises to $5.64 from $5.61.

MANTRA GROUP LIMITED ((MTR)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 2/4/1

Deutsche Bank downgrades to Sell from Hold because the valuation is not compelling, particularly given the cyclical nature of earnings and robust industry conditions. The broker has concern over earnings quality and the potential impact on share price performance.

Given acquisitions have been a driver of earnings momentum and the associated premium multiple, there is additional risk that the market begins to price a wider disconnect between earnings and the value accretion from acquisitions, the broker maintains. Target is reduced to $3.00 from $4.50.

NAVITAS LIMITED ((NVT)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/3/2

FY16 earnings were in line with guidance and implies a decline of 11.1% in the second half, slightly ahead of expectations, Macquarie observes. The broker downgrades to Underperform from Neutral.

Macquarie believes the flat growth outlook in FY17 reflects the high level of downside risk associated with the loss of contracts. Ongoing regulatory risks add to the downside. Target rises 22% to $5.78.

FY16 earnings were broadly in line with guidance, Credit Suisse observes. FY17 earnings are expected to be flat.

The broker notes the strong run up in the share price this year and believes the premium is difficult to justify, given the guidance for flat earnings and the execution risk in the move away from traditional royalty models towards joint ventures.

Credit Suisse downgrades to Underperform from Neutral. Target is raised to $5.20 from $5.00.

REA GROUP LIMITED ((REA)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 3/3/1

Deutsche Bank downgrades to Sell from Hold, given share price strength and on the back of a recently decline in property listing volumes in the capital cities.

 The broker attributes this decline in some extent to the federal election, exacerbated by tough comparables.

Target is raised to $57.00 from $52.75.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 4/3/1

FY16 results missed Ord Minnett's forecasts. The broker expects rates and expense trends will boost margins gradually back towards the 12% target in two years.

Margins in general insurance are expected to improve and the broker believes the bank and life divisions hold some prospects for growth. Ord Minnett does not believe there is scope for capital management near term.

The broker reduces its rating to Accumulate from Buy given the recent share price performance. Target is trimmed to $13.80 from $13.90.

SEVEN WEST MEDIA LIMITED ((SWM)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/2

Credit Suisse reduces FY17 forecasts given the weaker guidance, with the company expecting earnings to fall 15-20%. FY16 earnings were below the broker's estimates.

The main disappointment was the return to relatively high cost growth in the second half. The TV ad market is expected to be flat to down slightly in FY17 The broker downgrades to Neutral from Outperform. Target falls to 85c from $1.20.

See also SWM upgrade.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AUTOMOTIVE HOLDINGS GROUP LIMITED Buy Neutral UBS
2 DOWNER EDI LIMITED Buy Sell Ord Minnett
3 FORTESCUE METALS GROUP LTD Neutral Sell Morgan Stanley
4 HENDERSON GROUP PLC. Buy Neutral Credit Suisse
5 MINERAL DEPOSITS LIMITED Buy Neutral Ord Minnett
6 OIL SEARCH LIMITED Neutral N/A UBS
7 SANTOS LIMITED Buy Neutral Morgan Stanley
8 SEVEN WEST MEDIA LIMITED Neutral Sell Macquarie
9 SOUTH32 LIMITED Buy Neutral Morgan Stanley
10 WOOLWORTHS LIMITED Buy Neutral Morgans
Downgrade
11 AWE LIMITED Neutral Buy Macquarie
12 BENDIGO AND ADELAIDE BANK LIMITED Sell Neutral Macquarie
13 FAIRFAX MEDIA LIMITED Neutral Buy Deutsche Bank
14 HARVEY NORMAN HOLDINGS LIMITED Neutral Buy Ord Minnett
15 HOTEL PROPERTY INVESTMENTS Neutral Buy Ord Minnett
16 INDEPENDENCE GROUP NL Sell Buy Credit Suisse
17 MACQUARIE ATLAS ROADS GROUP Neutral Buy Morgans
18 MANTRA GROUP LIMITED Sell Neutral Deutsche Bank
19 NAVITAS LIMITED Sell Neutral Macquarie
20 NAVITAS LIMITED Sell Neutral Credit Suisse
21 REA GROUP LIMITED Sell Neutral Deutsche Bank
22 SEVEN WEST MEDIA LIMITED Neutral Buy Credit Suisse
23 SUNCORP GROUP LIMITED Buy Buy Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 DOW DOWNER EDI LIMITED 67.0% 42.0% 25.0% 6
2 GNC GRAINCORP LIMITED 50.0% 25.0% 25.0% 4
3 BPT BEACH ENERGY LIMITED 36.0% 21.0% 15.0% 7
4 FMG FORTESCUE METALS GROUP LTD 7.0% -7.0% 14.0% 7
5 STO SANTOS LIMITED 64.0% 50.0% 14.0% 7
6 WOW WOOLWORTHS LIMITED -36.0% -50.0% 14.0% 7
7 S32 SOUTH32 LIMITED 25.0% 13.0% 12.0% 8
8 MPL MEDIBANK PRIVATE LIMITED -6.0% -14.0% 8.0% 8
9 QAN QANTAS AIRWAYS LIMITED 100.0% 94.0% 6.0% 8
10 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 64.0% 58.0% 6.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 IGO INDEPENDENCE GROUP NL -50.0% -17.0% -33.0% 6
2 FXJ FAIRFAX MEDIA LIMITED 58.0% 75.0% -17.0% 6
3 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 33.0% 50.0% -17.0% 3
4 AWE AWE LIMITED 42.0% 58.0% -16.0% 6
5 MQA MACQUARIE ATLAS ROADS GROUP 67.0% 83.0% -16.0% 6
6 MTR MANTRA GROUP LIMITED 14.0% 29.0% -15.0% 7
7 REA REA GROUP LIMITED 29.0% 43.0% -14.0% 7
8 BEN BENDIGO AND ADELAIDE BANK LIMITED -21.0% -7.0% -14.0% 7
9 APA APA GROUP 25.0% 38.0% -13.0% 8
10 CSR CSR LIMITED 8.0% 17.0% -9.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 DOW DOWNER EDI LIMITED 4.665 3.657 27.56% 6
2 KAR KAROON GAS AUSTRALIA LIMITED 2.322 2.178 6.61% 5
3 FMG FORTESCUE METALS GROUP LTD 4.329 4.136 4.67% 7
4 SUN SUNCORP GROUP LIMITED 13.355 12.801 4.33% 8
5 STO SANTOS LIMITED 5.236 5.040 3.89% 7
6 S32 SOUTH32 LIMITED 1.856 1.800 3.11% 8
7 MPL MEDIBANK PRIVATE LIMITED 2.873 2.797 2.72% 8
8 WOW WOOLWORTHS LIMITED 20.807 20.261 2.69% 7
9 IGO INDEPENDENCE GROUP NL 3.613 3.522 2.58% 6
10 MQG MACQUARIE GROUP LIMITED 73.250 72.279 1.34% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 MTR MANTRA GROUP LIMITED 4.029 4.243 -5.04% 7
2 AWE AWE LIMITED 0.942 0.992 -5.04% 6
3 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.303 0.317 -4.42% 8
4 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 3.183 3.210 -0.84% 3
5 OSH OIL SEARCH LIMITED 7.758 7.820 -0.79% 6
6 BEN BENDIGO AND ADELAIDE BANK LIMITED 9.729 9.764 -0.36% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 GUD G.U.D. HOLDINGS LIMITED 60.125 52.194 15.20% 5
2 TAH TABCORP HOLDINGS LIMITED 24.036 21.231 13.21% 7
3 IGO INDEPENDENCE GROUP NL 10.390 9.266 12.13% 6
4 SUN SUNCORP GROUP LIMITED 95.138 86.557 9.91% 8
5 OSH OIL SEARCH LIMITED 12.504 11.485 8.87% 6
6 FMG FORTESCUE METALS GROUP LTD 38.144 35.958 6.08% 7
7 SFR SANDFIRE RESOURCES NL 38.026 35.851 6.07% 8
8 RMD RESMED INC 38.932 36.800 5.79% 8
9 STO SANTOS LIMITED 5.422 5.172 4.83% 7
10 OGC OCEANAGOLD CORPORATION 29.368 28.475 3.14% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED -1.134 0.449 -352.56% 8
2 VIT VITACO HOLDINGS LIMITED 4.367 9.367 -53.38% 3
3 APA APA GROUP 18.005 25.405 -29.13% 8
4 SWM SEVEN WEST MEDIA LIMITED 10.526 14.639 -28.10% 6
5 BWP BWP TRUST 17.320 22.146 -21.79% 4
6 PRU PERSEUS MINING LIMITED -1.084 -0.958 -13.15% 5
7 ILU ILUKA RESOURCES LIMITED 19.176 21.729 -11.75% 7
8 APN APN NEWS & MEDIA LIMITED 38.100 41.100 -7.30% 5
9 DOW DOWNER EDI LIMITED 38.901 40.878 -4.84% 6
10 BHP BHP BILLITON LIMITED 7.542 7.873 -4.20% 8

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CHARTS

AHG BEN DOW FMG FXJ HPI HVN IGO MDL NVT ORG OSH REA S32 STO SUN SWM WOW