Weekly Reports | Apr 24 2017
This story features ILUKA RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: ILU
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 April 17 to Friday April 21, 2017
Total Upgrades: 5
Total Downgrades: 7
Net Ratings Breakdown: Buy 43.70%; Hold 42.62%; Sell 13.69%
For the week ending Friday, 21st April 2017, FNArena registered five stockbroker upgrades for ASX-listed stocks and seven downgrades.
Amongst those receiving upgrades we find Telstra, National Australia Bank and Rio Tinto. On the other side we find ResMed, Sydney Airport, Newcrest Mining and CSR.
Remarkable is that all upgrades moved to Buy while only one downgrade moved to Sell. Receiver of the sole Sell downgrade was Whitehaven Coal. Iluka received a double whammy upgrade to Buy from Sell.
National Australia Bank commands top position in an otherwise quiet environment for valuations and target prices. TPG Telecom saw the largest decline; -3.30%.
Iluka's 51% upgrade to consensus forecast for the present financial year stands out, with Rio Tinto (+2%) a far distant second. There was more action on the negative side with Aurizon, Fortescue Metals, Santos, Newcrest Mining and Whitehaven Coal all suffering reductions between -11 and -4%.
Upgrade
ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 3/3/1
March quarter sales and revenue beat Ord Minnett forecasts by around 60%. Zircon sales were much better than expected, despite what is usually a seasonally weak quarter.
The broker updates price forecasts on the back of an improved outlook for demand. This leads to a hike in the recommendation to Accumulate from Lighten. Target rises to $8.80 from $6.40.
See also ILU downgrade.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Upgrade to Add from Hold by Morgans .B/H/S: 4/3/1
Morgans believes the outlook for the major banks is improving and remains cautiously optimistic about the share prices, because of a low cost of equity being factored into current prices.
The broker upgrades National Australia Bank to Add from Hold. Target is raised to $35.00 from $29.50.
RIO TINTO LIMITED ((RIO)) Upgrade to Buy from Neutral by Citi .B/H/S: 8/0/0
Despite a weak March quarter, Citi upgrades to Buy from Neutral, because of the share price correction on the back of recent iron ore weakness.
Incorporating the broker's latest commodity price changes drives upgrades to earnings in FY17 and FY18 estimates of 2% and 12% respectively.
The broker envisages further upside for capital management after strong cash flow. Target is $70.
TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/3/3
Despite the negative impact from a new mobile entrant, Deutsche Bank believes Telstra is now an appealing investment, given a sustainable dividend yield of 6.6%, potential capital return and a 39% price/earnings discount to the market.
The broker upgrades to Buy from Hold. Deutsche Bank believes the negative impact of the entry of TPG Telecom ((TPM)) as a mobile network operator will be mitigated by Telstra's superior network and its incumbent position. Target is reduced to $4.51 from $4.87.
TPG TELECOM LIMITED ((TPM)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/2
UBS has decided it is time to buy the stock and upgrades to Buy from Neutral. Target is steady at $6.70.
The broker believes the decline in the share price suggests the market could be valuing the company's foray into mobiles as destroying around $900m of value. This is also possibly implying that the market is factoring in a long-term mobile market share of around 4-5%.
The broker believes the market's reaction is excessive. The stock is now the broker is preferred pick, given the strong free cash flow in its underlying business.
Downgrade
CSR LIMITED ((CSR)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/5/1
Citi reviews aluminium and FX forecasts and maintains FY17 EBIT estimates unchanged. FY18 and FY19 EBIT estimates rise by 13% and 8% respectively.
The target is raised to $4.32 from $4.30, as the broker observes the company has been inactive in its share buy-back since September.
Due to this inactivity, and despite a 6.2% dividend yield, the broker's recommendation is downgraded to Neutral from Buy.
ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/1
Sales volumes were much stronger in the March quarter and Citi increases forecasts, which drive earnings upgrades and raise the target to $8.50 from $8.10.
The broker believes the major challenge that remains is the integration of Sierra Rutile after further unplanned outages in the quarter, although a raft of issues have largely been addressed.
The broker downgrades to Neutral from Buy because of the share price appreciation.
See also ILU upgrade.
MYER HOLDINGS LIMITED ((MYR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/5/0
Macquarie finds industry feedback in the apparel sector of concern. The company and a number of its peers report weak sales post Christmas.
The broker believes Myer remains one of the most sensitive retail businesses to a change in sales and cost reductions remain a key factor in supporting earnings over the short term.
Ongoing sales weakness in the industry is an increasing risk and the broker downgrades to Neutral from Outperform. $1.21 target retained.
NEWCREST MINING LIMITED ((NCM)) Downgrade to Hold from Add by Morgans .B/H/S: 1/3/3
The company has reported an earthquake occurred near its Cadia East mine. Cadia comprises 31% of total production.
No major damage is apparent and the company only expects a small impact on the FY17 result, although it will take more time to assess the damage fully. At this stage Morgans factors in a two-month interruption to production.
After recent share price strength and, with the expected earnings impact from Cadia, the broker downgrades the rating to Hold from Add. Target is reduced to $25.78 from $26.10.
RESMED INC ((RMD)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 5/2/0
Ord Minnett expects mask sales growth to be subdued in the March quarter, despite the release of the new AirFit range, as manufacturing challenges have caused supply to lag demand.
The broker reduces revenue forecasts to reflect this issue. Rating is downgraded to Hold from Accumulate. Target is reduced to $9.45 from $9.50. New masks are still expected to boost FY18 earnings growth.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/1
On the surface, the growth rate in March for international passengers of 2.3% appears below trend but Morgan notes the busy Easter period fell in April this year compared with March last year, meaning the company was cycling a stronger comparables.
Year-to-date trends are expected to be clearer once the April data is published and captures the Easter impact. Given the share price has passed the broker's target, the rating is reduced to Hold from Add. Target is $6.77.
WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/4/1
March quarter operations were broadly in line with expectations, although sales were slightly lower than Macquarie expected. The broker observes the company has been the beneficiary of a strong rally in coal prices as well as its own operating success.
Nevertheless, it appears the company has to offer larger discounts to be able to increase semi-soft sales in the market. Hence, although Macquarie acknowledges the company will re-gain some revenue from emptying inventories in the fourth quarter, significantly higher prices are not expected.
Rating is downgraded to Underperform from Neutral. Target is reduced to $2.70 from $2.80.
| Total Recommendations |
Recommendation Changes |
|
Broker Recommendation Breakup |
|
Broker Rating |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Target Price |
|||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Earning Forecast |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Technical limitations
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.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: CSR - CSR LIMITED
For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES 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: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED
For more info SHARE ANALYSIS: RMD - RESMED INC
For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED
For more info SHARE ANALYSIS: WHC - WHITEHAVEN COAL LIMITED