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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jun 19 2017

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 June 12 to Friday June 16, 2017
Total Upgrades: 3
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.81%; Hold 42.35%; Sell 15.84%

The Australian share market is not receiving any support from local stockbroking analysts. For the week ending Friday, 16th June 2017, FNArena registered three rating upgrades versus eight downgrades. Two out of three upgrades are linked to brokers responding to extreme weakness in lithium-related share prices.

The only other stock to receive an upgrade is Ansell. The good news is all upgrades went to Buy.

High flyer CSL, perennial disappointer Gateway and retailer Nick Scali were among those receiving downgrades.

Lithium producers also command pole position for positive revisions to target prices, followed by CSL and Ansell. The flipside only contains two names: Syrah Resources and Medibank Private.

Resources stocks also dominate the table for positive revisions to earnings estimates with Western Areas and Syrah Resources leading the pack, ahead of Bellamy's and Northern Star. Virgin Australia suffered the largest decrease in earnings estimates, followed by Independence Group, Santos, Oil Search and Orocobre.

For the week, positive changes to target prices/valuations and earnings forecasts are larger than negative adjustments. This is a notable break from the underlying trend since May. Investors will be hoping this positive trend can be maintained in the six weeks or so leading into the August reporting season.

Upgrade

ANSELL LIMITED ((ANN)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/2

Morgan Stanley expects the company to be a strong performer in the next 12 months, although raw materials remain the swing factor.

Positive manufacturing data from the US and inflection points in emerging markets make the broker confident that the company can maintain organic growth at the upper end of guidance.

The broker also suspects the influence of foreign exchange will be largely neutral in FY17. This could also continue into the next year and offset the influence of raw material price inflation.

Rating is upgraded to Overweight from Equal-weight and the target is raised to $25.35 from $23.59. Sector view is In-Line.

GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/0

A previously cautious Citi has upgraded to Buy/High Risk from Neutral/High Risk. The analysts believe the -30% decline in the share price doesn't seem justified, despite market concerns about lithium over-supply next year.

It is Citi's view that the current build up in direct shipping ore (DSO, unprocessed product) will prove unsustainable, hence so too will be current market concerns. In addition, Galaxy is going to miss its own production guidance for the year, on the analysts' calculations.

Price target has been reduced by 5c to $2.70. Given Galaxy's current cash flow profile and solid project pipeline, namely James Bay/Sal de Vida, Citi analysts see an attractive entry point post share market sell-off.

MINERAL RESOURCES LIMITED ((MIN)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/0/0

Deutsche Bank recently visited the company's Wodgina lithium mine in Western Australia. The company is set to become a 100,000 tonne per annum producer in FY18. The inclusion of  direct shipping ore has increased the broker's valuation for Wodgina.

The scale suggests to Deutsche Bank that the company will soon be the world's largest lithium producer once Mt Marion and Wodgina are ramped up.

FY18 and FY19 estimates for earnings per share have increased by 85% and 32% respectively. The broker upgrades to Buy from Hold and raises the target to $12.00 from $10.80.

Downgrade

CSL LIMITED ((CSL)) Downgrade to Hold from Add by Morgans .B/H/S: 4/2/0

The company has acquired an 80% equity stake in a Chinese plasma fractionator for US$352m. The market is significant, Morgans observes, with demand for immunoglobulin estimated to outstrip supply over the next 10 years.

Expanding its market-leading footprint in China should allow CSL to better exploit the projected growth in demand, the broker adds. While confident in the future growth trajectory the broker believes consensus expectations are high for FY18 and valuation is stretched.

The broker downgrades to Hold from Add. Target is raised to $140.20 from $133.30.

GATEWAY LIFESTYLE GROUP ((GTY)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

The company has provided an update on FY17 guidance, which implies better pricing but delays with higher margin sales. Macquarie reduces FY17 forecasts for earnings per share by -10.4% and FY18 by -0.4%.

Macquarie envisages long-term growth in the sector on the back of positive trends such as an ageing population, financial pressure on retirees and housing affordability.

Nevertheless, the broker does not believe the share price will outperform until the market is confident that earnings have found a bottom. Rating is downgraded to Neutral from Outperform. Target is $2.19.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/2/2

Macquarie observes sentiment is improving and the company has been able to push through a 13% rise in zircon reference prices. Nevertheless, despite strong demand for titanium dioxide, the increase in rutile pricing has been more subdued at just 4%.

The broker suspects the company is likely to focus capital on the Sierra Rutile assets over the next few years in preference to Balranald, and develop Cataby in  tandem. The development of Cataby is critical in Macquarie's opinion as the company needs it to sustain output of synthetic rutile.

Macquarie transfers coverage to a new analyst and downgrades to Underperform from Neutral. The broker makes a number of material changes to production assumptions with a net earnings impact of a -24% reduction to 2017 estimates offset by a 77% increase to 2018 and 2019  estimates. Target is raised to $6.70.

MIRVAC GROUP ((MGR)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 4/2/1

Deutsche Bank has adopted a more grim outlook for housing starts in Australia in the coming years, now forecasting a drop in the order of -20% by 2019. The analysts point out, multi-family housing starts represent circa 50% of Mirvac's Residential portfolio.

In addition, the share price is close to the broker's price target. Price target drops to $2.32 from $2.39.

MEDIBANK PRIVATE LIMITED ((MPL)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/3/4

The erosion of margins is not a new theme yet UBS is becoming more bearish following analysis of the escalating underlying inflationary pressures in private health insurance.

The broker concedes, off a low base, the brand data points could improve in coming months and regulatory reform for claims inflation may help. Both will take time to meaningfully affect earnings per share.

While appreciating the defensiveness of the stock, the broker believes the margin outlook is a core driver of both sentiment and earnings momentum and finds it increasingly difficult to be optimistic.  Downgrade to Sell from Neutral. Target drops to $2.50 from $2.75.

NICK SCALI LIMITED ((NCK)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0

Downside risks arising from a slowing domestic housing cycle combined with weak consumer environment have made Citi analysts uncomfortable with their Buy rating and elevated price target for Nick Scali.

Hence the decision was made to downgrade to Neutral from Buy. Earnings per share estimates for FY18 and FY19 have been reduced by -7% and -17% respectively. Target price falls by -23% to $6.45.

RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 2/1/1

Deutsche Bank has adopted a more grim outlook for housing starts in Australia in the coming years, now forecasting a drop in the order of -20% by 2019. Reliance Worldwide has been downgraded to Sell from Hold, but the move is inspired by what looks like a lofty valuation supported by elevated market expectations.

Target price has increased to $3.06 from $3.00.

STEADFAST GROUP LIMITED ((SDF)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 3/0/0

Ord Minnett has reviewed the company's investor presentation. The broker notes additional focus on international expansion opportunities in the briefing.

The stock has risen strongly in recent months which leads Ord Minnett to reduce its recommendation to Accumulate from Buy on valuation grounds. Target is $2.70.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ANSELL LIMITED Buy Neutral Morgan Stanley
2 GALAXY RESOURCES LIMITED Buy Neutral Citi
3 MINERAL RESOURCES LIMITED Buy Neutral Deutsche Bank
Downgrade
4 CSL LIMITED Neutral Buy Morgans
5 GATEWAY LIFESTYLE GROUP Neutral Buy Macquarie
6 ILUKA RESOURCES LIMITED Sell Neutral Macquarie
7 MEDIBANK PRIVATE LIMITED Sell Neutral UBS
8 MIRVAC GROUP Neutral Neutral Deutsche Bank
9 NICK SCALI LIMITED Neutral Buy Citi
10 RELIANCE WORLDWIDE CORPORATION LIMITED Sell Neutral Deutsche Bank
11 STEADFAST GROUP LIMITED Buy Buy Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 MIN MINERAL RESOURCES LIMITED 100.0% 67.0% 33.0% 3
2 ANN ANSELL LIMITED -17.0% -33.0% 16.0% 6
3 BHP BHP BILLITON LIMITED 63.0% 50.0% 13.0% 8
4 NWS NEWS CORPORATION 50.0% 40.0% 10.0% 4
5 DLX DULUX GROUP LIMITED -50.0% -56.0% 6.0% 7
6 ORE OROCOBRE LIMITED 80.0% 75.0% 5.0% 5
7 SYR SYRAH RESOURCES LIMITED 80.0% 75.0% 5.0% 5
8 TAH TABCORP HOLDINGS LIMITED 13.0% 10.0% 3.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 13.0% 38.0% -25.0% 4
2 NST NORTHERN STAR RESOURCES LTD 17.0% 40.0% -23.0% 6
3 SDF STEADFAST GROUP LIMITED 83.0% 100.0% -17.0% 3
4 CSL CSL LIMITED 58.0% 75.0% -17.0% 6
5 ILU ILUKA RESOURCES LIMITED 7.0% 21.0% -14.0% 7
6 MPL MEDIBANK PRIVATE LIMITED -57.0% -43.0% -14.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ORE OROCOBRE LIMITED 4.346 4.183 3.90% 5
2 MIN MINERAL RESOURCES LIMITED 13.220 12.820 3.12% 3
3 CSL CSL LIMITED 138.700 135.050 2.70% 6
4 ANN ANSELL LIMITED 24.093 23.800 1.23% 6
5 NST NORTHERN STAR RESOURCES LTD 4.432 4.390 0.96% 6
6 DLX DULUX GROUP LIMITED 6.290 6.234 0.90% 7
7 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 3.460 3.445 0.44% 4
8 ILU ILUKA RESOURCES LIMITED 8.431 8.403 0.33% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SYR SYRAH RESOURCES LIMITED 4.700 4.925 -4.57% 5
2 MPL MEDIBANK PRIVATE LIMITED 2.671 2.707 -1.33% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WSA WESTERN AREAS NL 0.867 0.567 52.91% 7
2 SYR SYRAH RESOURCES LIMITED -5.330 -6.413 16.89% 5
3 BAL BELLAMY'S AUSTRALIA LIMITED 22.167 19.433 14.07% 3
4 NST NORTHERN STAR RESOURCES LTD 32.386 30.983 4.53% 6
5 PTM PLATINUM ASSET MANAGEMENT LIMITED 30.900 30.375 1.73% 4
6 ORG ORIGIN ENERGY LIMITED 15.926 15.783 0.91% 7
7 ALQ ALS LIMITED 28.070 27.884 0.67% 7
8 ANN ANSELL LIMITED 138.079 137.811 0.19% 6
9 MIN MINERAL RESOURCES LIMITED 103.260 103.060 0.19% 3
10 NAB NATIONAL AUSTRALIA BANK LIMITED 242.963 242.600 0.15% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.495 0.570 -13.16% 6
2 IGO INDEPENDENCE GROUP NL 8.198 8.490 -3.44% 6
3 STO SANTOS LIMITED 18.025 18.529 -2.72% 8
4 OSH OIL SEARCH LIMITED 26.879 27.552 -2.44% 8
5 ORE OROCOBRE LIMITED 8.729 8.911 -2.04% 5
6 ILU ILUKA RESOURCES LIMITED 15.447 15.676 -1.46% 7
7 WPL WOODSIDE PETROLEUM LIMITED 165.749 167.989 -1.33% 8
8 AZJ AURIZON HOLDINGS LIMITED 21.940 22.131 -0.86% 8
9 QAN QANTAS AIRWAYS LIMITED 55.073 55.535 -0.83% 7
10 IPL INCITEC PIVOT LIMITED 19.585 19.735 -0.76% 8

Technical limitations

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CHARTS

ANN CSL ILU MGR MIN MPL NCK RWC SDF

For more info SHARE ANALYSIS: ANN - ANSELL LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: ILU - ILUKA RESOURCES LIMITED

For more info SHARE ANALYSIS: MGR - MIRVAC GROUP

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: MPL - MEDIBANK PRIVATE LIMITED

For more info SHARE ANALYSIS: NCK - NICK SCALI LIMITED

For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED

For more info SHARE ANALYSIS: SDF - STEADFAST GROUP LIMITED