Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ANSELL LIMITED, and other companies. For more info SHARE ANALYSIS: ANN

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 8 to Friday August 12, 2016
Total Upgrades: 12
Total Downgrades: 21
Net Ratings Breakdown: Buy 39.78%; Hold 45.50%; Sell 14.72%

For the week ending Friday, 12th August 2016, the opening week for the August reporting season in Australia, FNArena registered twelve upgrades for individual ASX-listed stocks against 21 downgrades.

Several companies featured multiple times with Computershare's financial report triggering no less than three upgrades. Container company Royal Wolf's report was good for two upgrades. On the negative side, banks featured prominently with CommBank receiving two downgrades and Westpac's trading update also triggering one downgrade.

Magelllan Financial stands out on the negative side. The stock received three downgrades post financial update; all went to Neutral. Other stocks receiving downgrades include Goodman Group, iCar Asia, Telstra, Suncorp, Sealink Travel Group and Virgin Australia. Clearly, the reporting season is making its impact felt.

 Downer EDI's well-received financial report has pushed the stock to the pinnacle of this week's table for positive revisions to price targets (+29%), followed by Royal Wolf, Suncorp and REA Group. On the flipside, Virgin Australia's targets suffered most (-11%), followed by Speedcast International, Computershare and Westpac.

It shouldn't come as a surprise FNArena registered big changes in earnings forecasts. Virgin Australia (+257%) beat everyone else during the week, with Transurban, AGL Energy, OZ Minerals, REA Group and News Corp following at considerable distance (but still registering significant increases nevertheless).

Young ASX-lister food supplement producer Vitaco saw its estimates plunge by 53%; the company was the heaviest hit in the week. BWP Trust comes in second worst copping a fall of -21%, followed by Iluka, Bendigo and Adelaide Bank and Evolution Mining.

Expect more of the same as the domestic reporting season moves into its second week.

Upgrade

ANSELL LIMITED ((ANN)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/4/1

UBS believes the company has left behind a 12-18 month period of currency and operational headwinds. Underlying trading conditions should gradually improve.

Notwithstanding potential for weakness around the FY16 results the broker envisages upside risk for the FY17-18 outlook. Rating is upgraded to Buy from Neutral. Target is raised to $22.70 from $19.40.

CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/1

Carsales delivered a strong result, ahead of Macquarie. Display performed better than the broker expected. Numbers were solid overall, with international divisions appearing well positioned.

The scope for improvement in international assets will add an additional layer, Macquarie suggests, to medium term growth. Target rises to $13.40 from $12.50. Upgrade to Outperform.

See also CAR downgrade.

COMPUTERSHARE LIMITED ((CPU)) Upgrade to Hold from Lighten by Ord Minnett and Upgrade to Buy from Neutral by Citi and Upgrade to Add from Hold by Morgans .B/H/S: 4/3/1

FY16 profit was in line with guidance. Ord Minnett observes the market liked the guidance for a flat FY17. The broker notes the company is undergoing a transition, with the intention of replacing declining revenue in registry with more capital-intensive earnings streams.

FY17 is expected to be a testing year for these initiatives and, if successful, FY18 may provide rewards in terms of earnings growth, the broker contends.

Ord Minnett upgrades to Hold from Lighten. Target rises to $10.50 from $10.20.

Citi takes guidance from management's confidence and agrees growth is likely to accelerate in FY17. On this basis, valuation discount is being removed, allowing the price target to rise to $11 from $9.90.

The analysts explain they are still forecasting a minor decline (-1%) in EPS this year, but that's because of negative FX impact. On constant currency the outlook looks better. Investors might have to be patient, but it is worth it, say the analysts. Upgrade to Buy from Neutral.

The FY16 result was above forecasts and FY17 guidance as Morgans expected. The broker suspects the bottom of the earnings cycle is nigh. Morgans lifts FY17 and FY18 earnings by 3-4% to reflect slightly improved revenue assumptions.

The broker believes the core registry is a quality franchise, generating strong cash flow with a dominant market position and the difficult operating conditions are masking the significant work done to improve underlying operations.

Morgans upgrades to Add from Hold. Target is raised to $10.82 from $10.41.

HORIZON OIL LIMITED ((HZN)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/1

The company has an agreement with major shareholder, IMC Investments, for a US$50m debt facility. This should provide the funds needed to redeem the remaining US$58.8m of convertible bonds, UBS contends.

UBS updates its valuation for production estimates and upgrades to Buy from Neutral, after the recent decline in the share price. Target is lowered to 7c from 8c.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/1/1

Thermal coal price forecasts have been raised to US$55/t from US$50/t for the medium term and Credit Suisse now expects a modest market deficit in 2016 and 2017. Prices are expected to retrace from current levels as China's air conditioning consumption period ends.

Credit Suisse expects a strong uplift for New Hope's earnings in FY17 and FY18. Rating is upgraded to Neutral from Underperform. Target is raised to $1.65 from $1.40.

REA GROUP LIMITED ((REA)) Upgrade to Hold from Reduce by Morgans .B/H/S: 1/4/2

Profit growth in FY16 was slightly less than Morgans expected. The broker believes there is further growth potential in the online share of real estate marketing.

With greater comfort in FY17 revenue the rating is upgraded to Hold from Reduce. Target is raised to $60.97 from $56.70.

See also REA downgrade.

RECKON LIMITED ((RKN)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/0

Reckon's earnings were in line with Macquaire but the interim dividend has been cut to 2.0cps from 4.3cps. There are signs of Reckon's significant investment in product development, marketing and offshore expansion beginning to provide benefits but it is a slow road and these costs will continue to drag, the broker notes.

ReckonOne has been well received but it's early days. Target falls to $1.57 from $1.65 but on the share price de-rating and talk of potential corporate activity in the space Macquarie upgrades to Neutral.

ROYAL WOLF HOLDINGS LIMITED ((RWH)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/0/0

Royal Wolf's result was in line with Macquarie, with a 2.5cps dividend exceeding the broker's 2.0cps forecast. Cash generation was solid and while the company still suffered from its exposure to the energy sector, it has almost now cycled through to a greater emphasis on infrastructure, the broker notes.

It will take time for the market to regain confidence, but given the illiquidity of the stock Macquarie sees now as a good time to revisit the name. Upgrade to Outperform. Target rises to $1.40 from $1.25.

Credit Suisse believes FY16 marks the low point, while acknowledging risks and challenges remain for the company. Equally important, earnings should be far more stable from now onwards given Royal Wolf no longer has material resource or oil & gas exposure, point out the analysts.

Estimates have been lowered, but as the analysts believe the outlook looks better, this is not seen as anything substantial. Upgrade to Outperform from Neutral. Price target jumps to $1.40 from $1.12.

SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Upgrade to Add from Hold by Morgans .B/H/S: 2/2/0

Morgans upgrades to Add from Hold ahead of what may be a weaker-than-expected result. The broker believes the share price performance more than compensates for the likely downside in the numbers.

Being below consensus, the broker considers the trading multiples now look attractive relative to expectations for earnings growth. Target is reduced to $4.27 from $4.39.

Downgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 5/1/0

Credit Suisse expects the company's new social casino, Fa Fa Fa, may ultimately become a US$50m revenue opportunity. The broker already factors in 50% digital revenue growth to FY18.

The broker now believes the stock is fully valued and lowers the rating to Neutral from Outperform. Target is raised to $15.00 from $13.20.

CARSALES.COM LIMITED ((CAR)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/4/1

FY16 profit was in line with Ord Minnett forecasts. The broker envisages upside from the international businesses but prefers to witness more meaningful progress before pricing in a more bullish scenario.

The broker downgrades the rating to Hold from Buy, and raises the target to $12.11 from $12.04 as the rolling forward of its model more than offsets a 2% cut to earnings forecasts.

See also CAR upgrade.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Buy by UBS .B/H/S: 1/6/1

FY16 cash earnings were slightly lower than Morgans expected. The miss is blamed on soft insurance and non-interest income in banking.

Morgans reduces FY17 and FY18 forecasts by 2.2% and 1.9% respectively. The broker is now building a partially underwritten dividend reinvestment plan into forecasts.

The rating is downgraded to Hold from Add because of share price strength. The $77.40 target is retained.

FY16 results were slightly lower than expected. UBS finds the highlight was the deposits, especially in cheaper, sticky transaction deposits. The broker notes the bank is continuing to struggle in mortgages.

UBS observes the majority of last week's mortgage re-pricing was needed to stabilise the mortgage margin and the mortgage back book is paying for the front book discounting.

Earnings estimates are downgraded 3-4%.The broker downgrades to Neutral from Buy with the stock approaching the target, which is unchanged at $80.

CENTURIA METROPOLITAN REIT ((CMA)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0

Earnings per security of 18.4c and distributions of 17.0c were in line with UBS estimates.

The broker downgrades to Neutral from Buy on valuation grounds but expects the distribution yield to provide support in the current environment. Target raised to $2.40 from $2.20.

GOODMAN GROUP ((GMG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/4/0

Credit Suisse expects full year operating profit of $712.7m, up 7.5%. With the stock trading above the revised target the rating is downgraded to Neutral from Outperform.

Target is raised to $7.29 from $7.10. In the context of a stretched A-REIT sector the broker believes the stock continues to offer relative value.

ICAR ASIA LIMITED ((ICQ)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/2/0

The company expects 2016 revenue to be up 7-23%. This is a significant downgrade on Credit Suisse's previous estimates and implies a slowdown in the second half.

The broker reduces its rating to Neutral from Outperform but remains bullish on the long-term growth potential, with indications from the latest announcement that target markets are at an earlier stage than previously appreciated. Target is reduced to 60c from $1.00.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Hold from Buy by Ord Minnett and Downgrade to Hold from Add by Morgans and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/1

Ord Minnett analysts saw a strong FY16 performance, albeit largely in line with expectations. Magellan is working on US expansion and confident it can fill the latent US$4-5bn of capacity in the insto business, while retail inflows are booming.

Ord Minnett sees most drivers as of medium to longer term and this year a negative result is anticipated (cycling of strong performance fees). On this basis, the valuation seems stretched and the rating has thus been pulled back to Hold from Buy. Target rises to $26.12 (was $24.76).

FY16 profit was in line with Morgans. The broker observes the outlook for robust retail inflows is intact but forecasts a 5% earnings decline in FY17 as the company is cycling a strong performance fee from FY16.

The stock is rated as a quality long-term holding but as it is trading close to the price target the broker looks for a more attractive entry point and downgrades to Hold from Add. Target is raised to $27.47 from $24.50.

FY16 results slightly beat Credit Suisse estimates, driven by higher principal investment earnings with funds management in line.

The broker considers the result credible, with a more positive outlook for flows leading to small upgrades to estimates.

FY17 estimates are upgraded by 2%. Rating is downgraded to Neutral from Outperform following the recent outperformance. Target is raised to $26 from $24.

OZ MINERALS LIMITED ((OZL)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/4/3

Given the strong share price performance UBS downgrades to Sell from Neutral. Target falls to $6.10 from $6.30.

The broker notes copper names such as OZ Minerals are receiving little attention, with the uncertainty around the Philippines driving interest in nickel equities.

REA GROUP LIMITED ((REA)) Downgrade to Sell from Neutral by UBS and Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/4/2

FY16 numbers disappointed UBS. Commentary on operations suggests a more muted outlook. Cost growth accelerated and listing volumes are lower.

The broker makes no changes to FY17 forecasts at this stage but considers the risk is to the downside. The broker considers the valuation now stretched and downgrades to Sell from Neutral. Target is steady at $52.

Listing volume weakness affected growth in FY16 with earnings below Credit Suisse forecasts. The broker reduces FY17 profit estimates by 6%.

Credit Suisse considers iProperty an attractive longer term opportunity and its earnings contribution will take time to become meaningful.

Rating is downgraded to Neutral from Outperform as the stock is trading close to revised valuation. Target is raised to $61.00 from $54.50.

See also REA upgrade.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/5/1

The company's business has grown ahead of the industry average, Credit Suisse observes. and operating theatres due to come online are expected to support near-term outperformance.

The broker downgrades to Neutral from Outperform, given the recent sector-relative share price performance. The $72.00 target is retained.

Credit Suisse expects FY16 earnings of $871m with a final dividend of 70c.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/5/1

Given the strong share price performance UBS downgrades to Neutral from Buy. Target falls to $6.25 from $6.50. 

The broker notes copper names such as Sandfire are receiving little attention with the uncertainty around the Philippines driving interest in nickel equities.

SONIC HEALTHCARE LIMITED ((SHL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/3/2

Credit Suisse downgrades to Underperform from Neutral, envisaging the recent re-rating reflects the expectations for favourable outcomes from rent regulation.

The potential for an acquisition of size in the absence of an equity raising seems limited to the broker, based on balance sheet constraints.

Credit Suisse reduces the target to $20.10 from $21.75.

SEALINK TRAVEL GROUP LIMITED ((SLK)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/1/0

Ord Minnett clearly liked the FY16 report, with the analysts commenting on how strong both organic and acquired growth turned out. They remain optimistic, forecasting EPS growth of 4% in FY17 but only a flat result in FY18 as construction phase earnings are cycled out.

The price target rises to $4.47 from $4.18 on higher estimates, but the analysts cannot get past their observation the present valuation looks stretched. Downgrade to Hold from Accumulate.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/4/1

Deutsche Bank is downgrading to Hold from Buy.  The company's decision to maintain a more optimistic catastrophe budget, along with other assumption changes at the FY16 result and ever lower bond yields, leaves the broker with an increasingly uneasy feeling that 12% margins may be further out of reach.

Deutsche Bank envisages limited value appeal based on the revised earnings outlook and current market and peer price/earnings ratios. Target is reduced to $13.70 from $13.85.

TELSTRA CORPORATION LIMITED ((TLS)) Downgrade to Hold from Add by Morgans .B/H/S: 0/6/2

Morgans expects subscriber growth to slow in the current half year because of stronger competitors and Telstra's own network challenges.

While there is some downside to the outlook, the broker expects a buy-back announcement would offset any earnings risk. Following share price appreciation the rating is moved to Hold from Add. Target is unchanged at $5.80.

VIRGIN AUSTRALIA HOLDINGS LIMITED ((VAH)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/5/2

Reported financials were weak, but Citi analysts are doing their best to see the positives through the trees.

They continue to see the domestic market as being "rational" and this, ultimately, will allow both Virgin and Qantas ((QAN)) to improve financial performances, the analysts believe.

They see longer term benefits from repayment of high debt and expensive leases, but in the short term Citi's valuation drops to 22c and this triggers a Sell rating.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 5/3/0

Following the bank's downgrade of guidance on non-interest income in its third-quarter trading update, Ord Minnett analysts have decided to downgrade to Hold from Buy (two steps down). The analysts do consider this the last piece of bad news.

It is their view operational conditions are likely to improve slightly from here, with Westpac to keep its dividend stable, allowing the 80% payout ratio to decline. The analysts also motivate their downgrade by the fact Westpac's superior capital position has now evaporated. Price target falls to $32 from $33.50.

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