Weekly Reports | Dec 05 2016
This story features HUB24 LIMITED, and other companies. For more info SHARE ANALYSIS: HUB
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, 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.
Period: Monday November 28 to Friday December 2, 2016
Total Upgrades: 7
Total Downgrades: 12
Net Ratings Breakdown: Buy 42.97%; Hold 42.18%; Sell 14.85%
The lag effect between share price movements and stockbroking analysts adjusting their ratings became visible last week. Despite the Australian share market clearly running into headwinds as the week progressed, the number of downgrades for individual ASX-listed stocks still clearly outnumbered the number of upgrades.
For the week ending Friday, 2nd December 2016, FNArena registered seven upgrades and twelve downgrades. Four of the upgrades didn't reach higher than Neutral. Alumina Ltd and Investa Office were the only stocks to receive fresh Sell ratings.
As a result, the gap between total Buy ratings and Neutral recommendation has narrowed considerably. Total Buy ratings for the eight stockbrokers monitored daily now stand at 42.97% versus 42.18% on Neutral/Hold and the remaining 14.85% on Sell.
Positive adjustments to price targets were few and minimal, with REA Group topping the table (+2.6%), followed by Metcash (+2.4%). In a share market dominated by disappointing market updates, it should not surprise the numbers look a lot higher on the negative side. Vocus Communications saw its price targets tumble by no less than -24.6%. Next one to follow is Amcor (-4.8%), then follows Fairfax Media (-4.1%).
This was not the situation for earnings estimates. Mount Gibson's forecasts received a boost of +69%, easily beating Aristocrat Leisure (+29%) and Western Areas (+15%). Most stocks enjoying upward adjustments to profit forecasts are commodity producers these days.
Stocks with downward adjustments to estimates include Vocus Communications (-9.7%), News Corp (-8.7%), Programmed Maintenance (-7.6%) and, yes indeed, gold producer Newcrest Mining (-4.5%).
Underlying, the new trend has become resources versus the rest of the market.
HUB24 LIMITED ((HUB)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/0/0
The company will acquire Agility Applications, a financial services technology provider, which will broaden broker relationships and enhance Hub24's non-custodial reporting on offer.
Ord Minnett notes Agility counts 40% of the broking market as clients and reports on $200bn of client assets, providing a rich cross selling opportunity with the Hub24 platform.
The broker reassesses its valuation methodology and includes Agility in its estimates. Rating is upgraded to Buy from Accumulate and the target is raised to $6.46 from $5.00.
JB HI-FI LIMITED ((JBH)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/3/1
The company has completed the acquisition of The Good Guys on November 28, earlier than expected. Credit Suisse consolidates profit from that date having previously assumed it would occur on January 1 2017.
This results in a $16m increase in EBIT for the first half and a 5% upgrade to earnings per share for FY17. The broker's target increases to $26.43 from $26.16 and, because of recent share price weakness, the rating is upgraded to Neutral from Underperform.
PACT GROUP HOLDINGS LTD ((PGH)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/3/0
Pact's rigid packaging end-markets are finally showing signs of life, UBS notes, and dairy prices have recovered some 55% from their lows. This should provide for a better domestic outlook from the second half of FY17 once contract losses have been cycled through.
Acquisitions could provide further underpinning, leading UBS to consider risk/reward to now be more evenly balanced at the current valuation. Upgrade to Neutral. Target rises to $6.20 from $5.60.
TOX FREE SOLUTIONS LIMITED ((TOX)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/3/1
Tox Free's AGM revealed new contract wins at Ichthys and GLNG. Add in the retention of the Fortescue and ALNG contracts and the core business is on a strong footing heading into FY18, Macquarie suggests. There was no update on the Chevron contract, but this is becoming less of an issue, the broker believes.
With the core business winning contracts, the earnings outlook is solid and valuation is inexpensive, leading Macquarie to upgrade to Outperform. Target rises to $2.79 from $2.65.
VITA GROUP LIMITED ((VTG)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0
The company has agreed new commercial terms with Telstra ((TLS)), with changes to the remuneration structure. No specific earnings impact was provided, although the company stated it expects to see volume improvement, offset by some margin compression.
Morgans suspects, overall, the remuneration changes reflect Telstra's cost pressures and this could see increased measures from Telstra to control the growth of the retail licensee channel.
The broker suspects the new deal reduces the medium/longer term growth opportunity in the company's retail channel but, that said, Vita Group has multiple growth drivers. Morgan upgrades to Add from Hold. Target falls to $4.00 from $5.20.
WESTFIELD CORPORATION ((WFD)) Upgrade to Neutral from Sell by Citi .B/H/S: 5/1/0
Citi analysts still believe market consensus forecasts are too high. They also believe news flow has been largely negative since their last update on the company in late August, with both Brexit and Trump occurring in core Westfield operating markets.
But… the share price pull back that has occurred since seems to provide sufficient compensation, hence why the rating moves to Neutral from Sell. Citi analysts have reduced estimates and their valuation. Target drops to $9.19 from $9.58.
WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/4/2
UBS has upgraded its coking coal price forecasts by 9-27% in FY17-18 and thermal coal by 4-17% leading to earnings forecast increases for Whitehaven of 53-163%. The broker's new prices still remain well below current spot.
While Whitehaven remains beholden to Chinese policy, the recent share price pullback sees UBS upgrade to Neutral. Target rises to $2.90 from $2.60.
AMCOR LIMITED ((AMC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/4/1
Credit Suisse downgrades to Neutral form Outperform because of changing macro conditions. The company's defensive revenue streams suggest it will be unlikely that the stock will outperform as investors seek growth.
The US dollar appreciation against the euro has induced downgrades to earnings per share forecasts of about 5%. First half EBIT is likely to be flat, in the broker's opinion, affected by the acquisition of Alusa. Target is reduced to $15.10 from $16.90.
ALUMINA LIMITED ((AWC)) Downgrade to Sell from Buy by UBS .B/H/S: 0/4/3
2016 was a big year of change for Alumina Ltd, UBS notes, given alterations to the AWAC JV with Alcoa. If the alumina price holds at its current US$320/t, the company should be able to increase returns to shareholders.
But this is not UBS' base case. The broker has lifted its alumina forecast to US$280 from US$260, resulting in 67-75% earnings forecast increases in FY17-18. The broker nevertheless suggests alumina is overbought and will retreat once Chinese restocking ends.
This view, and a solid share price run, sees UBS downgrading to Sell. Target rises to $1.50 from $1.45.
BHP BILLITON LIMITED ((BHP)) Downgrade to Hold from Add by Morgans .B/H/S: 3/4/1
Morgans downgrades to Hold from Add following the recent strength in the share price which has meant its target has been achieved. Target is raised to $25.82 from $25.54.
The broker still considers the stock a key pick in the sector but expectations have cooled amid a belief that Chinese steel consumption will ease heading into the new year.
That said, the broker has increased confidence in its long-held view that the bottom of the resources cycle was hit in early 2016.
The main risk to its call on BHP is the ongoing legal process surrounding Samarco and short-term uncertainty in commodity prices.
INVESTA OFFICE FUND ((IOF)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/3/1
Ord Minnett considers the Investa Commercial Property Fund's acquisition of Morgan Stanley's 8.9% stake in IOF is aimed at protecting its ownership of the Investa business by reducing the potential for IOF to be acquired by a third party.
The broker believes this is a negative for the share price in that the stock is trading at a premium that reflects the increased probability of being acquired. The broker also envisages Cromwell ((CMW)) is now likely to exit its 9.8% stake post the December distribution ex date, which raises the possibility of a discounted sale to third-party investors.
As a result, Ord Minnett reduces its rating to Lighten from Hold and maintains a $4.23 target.
METCASH LIMITED ((MTS)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/2/2
First half net profit of $82.8m was ahead of Ord Minnett forecasts, but was driven by gains at the corporate line, with core EBIT for food & grocery below expectations.
The broker downgrades to Hold from Accumulate and reduces the target to $2.00 from $2.30. Ord Minnett believes the competitive environment is challenging and likely to remain so, and this will consume much of the company's cost savings.
While the company is executing well, the position of its customers in aggregate is not strong, which weighs on the competitive position of the wholesaler, in the broker's opinion.
RCG CORPORATION LIMITED ((RCG)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0
Like-for-like sales were reasonably subdued in the year to date, with the exception of Accent. The company has announced a material increase to the roll out of stores and a stronger-than-expected margin performance for Accent.
Morgans makes slight upgrades to forecasts of earnings per share and moves to a 50-50 PE/DCF weighting. As a result, valuation falls to $1.62 from $1.94. Rating downgraded to Hold from Add.
TRANSURBAN GROUP ((TCL)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/3/0
The company's share price is up 12% from the November low, as fundamental value has re-asserted, Morgan Stanley notes.
The broker believes the growth projects will create value over time but there is some short-term risk to valuation, in terms of bond yields, and earnings, in terms of ride sharing.
The broker considers ride-sharing applications are positive in Australia, reducing congestion, but a near-term risk for US roads where customers with three or more occupants pay no toll.
Thus, the rating is downgraded to Equal-weight from Overweight. Target is lowered to $11.22 from $11.96. Cautious sector view retained.
360 CAPITAL GROUP ((TGP)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
360 Capital Group has entered into a transaction to sell 360 Capital Investment Management its responsible entity along with co-investment stakes in most of its funds, including 360 Capital Industrial ((TIX)) and 360 Capital Office ((TOF)), subject to a number of approvals from various stake holders.
The remaining entity will be cashed up, Morgans notes, and funds will be used for a buyback and to pursue new opportunities. The broker adjusts its target down to 95c, or close to net tangible asset valuation, from $1.04. Rating moves to Hold.
360 CAPITAL OFFICE FUND ((TOF)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
360 Capital Investment Management, as the responsible entity, has entered into a conditional contract to sell the majority of its funds management platform and co-investments to Centuria Capital ((CNI)).
As part of the transaction, Centuria will purchase all the units 360 Capital owns in TOF for around $47.4m or $2.25 per unit. Centuria Is considering a merger of TOF and Centuria Metropolitan REIT ((CMA)), if in the best interest of unit holders.
Morgans downgrades to Hold from Add and reduces the target to $2.26 from $2.35.
TATTS GROUP LIMITED ((TTS)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/3/0
Credit Suisse downgrades to Neutral from Outperform as the shares have rallied after Tabcorp ((TAH)) acquired a 10% equity stake via an equity swap. The broker envisages little chance of another suitor emerging.
At this stage, the broker believes Tabcorp offers a more compelling way to play the merger. The target is reduced to $4.50 from $4.85.
VOCUS COMMUNICATIONS LIMITED ((VOC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/2/0
Morgan Stanley observes investors have de-rated the Australian telco sector in recent months and the company shares are down 40% in the year to date.
The broker believes the stock offers the highest risk/return characteristics in the sector. While from an industry perspective there remain revenue growth opportunities for the company as a vertically integrated telco in the NBN, there are two changes in recent months which have changed Morgan Stanley's fundamental view.
These are increased telco competition, which is negative for margins and future growth trajectory, and, specific to Vocus, disappointing early results from the just-completed acquisition of Nextgen.
Morgan Stanley downgrades to Equal-weight from Overweight. Target is reduced to $5.00 from $9.55. Industry view is In-Line.
XENITH IP GROUP LIMITED ((XIP)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0
The company will buy Griffith Hack for $152m. Morgan flags the transformational nature of the deal, given the sheer scale of Griffith Hack compared with the company's market capitalisation.
The broker believes Xenith has now reached its natural market share in Australia and may struggle to materially outgrow the broader market. Hence, future growth will need to be driven by offshore penetration.
Morgan Stanley downgrades to Hold from Add, until it is comfortable with how the integration is progressing. Target falls to $2.92 from $4.20.
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
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
For more info SHARE ANALYSIS: AMC - AMCOR PLC
For more info SHARE ANALYSIS: AWC - ALUMINA LIMITED
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
For more info SHARE ANALYSIS: CMW - CROMWELL PROPERTY GROUP
For more info SHARE ANALYSIS: CNI - CENTURIA CAPITAL GROUP
For more info SHARE ANALYSIS: HUB - HUB24 LIMITED
For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED
For more info SHARE ANALYSIS: MTS - METCASH LIMITED
For more info SHARE ANALYSIS: PGH - PACT GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: TAH - TABCORP HOLDINGS LIMITED
For more info SHARE ANALYSIS: TCL - TRANSURBAN GROUP LIMITED
For more info SHARE ANALYSIS: TGP - 360 CAPITAL GROUP LIMITED
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED
For more info SHARE ANALYSIS: VTG - VITA GROUP LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED