Weekly Reports | Jul 10 2017
This story features ANZ GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: ANZ
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 July 3 to Friday July 7, 2017
Total Upgrades: 8
Total Downgrades: 8
Net Ratings Breakdown: Buy 42.33%; Hold 41.25%; Sell 16.42%
For the week ending Friday, 7th July 2017, FNArena registered eight downgrades and eight upgrades in broker ratings for individual ASX-listed stocks, with the added observation that both Flight Centre (2x) and Magellan Financial (3x) account for more than half of all downgrades.
A stark difference between the two is Flight Centre reaped two extra Sell ratings following its short covering inspired rally, while downgrades for Magellan stopped at Neutral.
Two banks and BHP Billiton were among the stocks receiving recommendation upgrades during the week.
Upward revisions to valuation/price targets remained rather benign, which can also be seen in a context of a quiet corporate calendar, even though this is confession season ahead of the August reporting time. oOh!Media and Origin Energy top the tables with increases of 1.9% and 1.7% respectively.
The downside offers higher numbers as Myer took another -3.78% hit, followed by APN Outdoor (-2.87%) and Link Administration (-2.42%). The latter raised fresh capital to pay for a potentially transformational UK acquisition.
Changes to earnings forecasts were more brisk, with Xero enjoying a solid boost, followed by Brickworks, oOh!Media and St Barbara. Again, negative adjustments tended to be larger with Mt Gibson Mining receiving the biggest blow, followed by Janus Henderson Group, Mineral Resources, Resolute Mining and Oz Minerals.
Special note: analysts are shifting their forecasts into USD for Janus Henderson as the merged entity is not only listed on NYSE, its prime reporting currency will now be the greenback.
Upgrade
AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/5/0
The ability and willingness of the banks to reprice their mortgage books has surprised Macquarie, and led the broker to believe near term earnings trends should remain supportive. There is scope, the broker suggests, for the majors to beat FY17 consensus forecasts.
ANZ leads the big four in capital position, therefore it is well placed to meet APRA's new capital requirements, the announcement of which is pending. Macquarie upgrades to Outperform. Target rises to $30.50 from $30.00.
BEADELL RESOURCES LIMITED ((BDR)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/2/0
UBS upgrades to Neutral from Sell, suspecting the de-rating in the share price is complete. As the stock now factors in a stronger Brazilian real the risks appear balanced to the broker.
Nevertheless, as Australian investors have considerable choice locally, the broker believes the company's single asset exposure and currency risks are likely to keep some on the sidelines until the exposure to the real is reduced. Target is reduced to $0.23 from $0.24.
BHP BILLITON LIMITED ((BHP)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 6/2/0
BHP has underperformed global mining peers over the past three years and Deutsche Bank finds automation, productivity and high returning growth are the most compelling features of the company's opportunities.
The broker believes a sharper focus on returns could create significant value for shareholders. Rating is upgraded to Buy from Hold and the target to $27.50 from $24.40.
DEXUS PROPERTY GROUP ((DXS)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/2/3
Ord Minnett reviews estimates, focusing on the Sydney CBD exposure and incorporating the acquisition of the MLC and Pyrmont buildings. The broker also notes the share prices declined by around -11% in the last two weeks, with the securities underperforming the sector.
Continued strength in Sydney is priced in, the broker believes. Hence, rating is upgraded to Hold from Lighten and the target is increased to $9.50 from $9.00.
INVESTA OFFICE FUND ((IOF)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/1/2
Ord Minnett believes the outlook for the fund's Sydney portfolio has improved because of the pace at which market rents continue to rise in recent sales, which suggest asset values have increased a further 15% in the past three months.
Earnings forecasts are increased by 10%. The broker upgrades to Accumulate from Hold. Target is $5.00.
NATIONAL AUSTRALIA BANK LIMITED ((NAB)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/2/3
The ability and willingness of the banks to reprice their mortgage books has surprised Macquarie, and led the broker to believe near term earnings trends should remain supportive. There is scope, the broker suggests, for the majors to beat FY17 consensus forecasts.
Given recent share price underperformance against peers, Macquarie upgrades NAB to neutral. Target rises to $32.00 from $31.50.
ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/3/0
Citi has upgraded to Buy from Neutral while lifting the target price by 14% to $8.59 as increased cash flows should assist with rebuilding the balance sheet.
The analysts explain their modeling now includes the increased asset divestments announced May 19th, plus a mark to mark on electricity/gas prices and tariffs.
Both have been partially offset by higher costs. The risk, suggest the analysts, is that without an oil price recovery, any share price recovery may be longer dated.
SILVER LAKE RESOURCES LIMITED ((SLR)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/1/0
UBS upgrades to Neutral from Sell, following a sharp pull-back in the share price. The broker suspects, with an increasing gold price outlook, that the stock's leverage may see it outperform peers.
Target is reduced to $0.48 from $0.53.
Downgrade
DORAY MINERALS LIMITED ((DRM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/0/1
Mining is to be suspended at Andy Well as mining of the Wilbur and Judy lodes have demonstrated less extensive gold mineralisation than previously expected.
The company has been considering supplementing underground ore from Andy Well with open pit ore from the nearby Gnaweeda project but this is not a possibility until late FY18. The Deflector mine will now become the company's sole operation.
The suspension of operations at Andy Well comes as a surprise to Macquarie. Rating is downgraded to Underperform from Neutral. Target is reduced to $0.19 from $0.28.
FLIGHT CENTRE LIMITED ((FLT)) Downgrade to Underperform from Outperform by Credit Suisse and Downgrade to Sell from Neutral by Citi .B/H/S: 0/4/4
The recent gains in the share price have overshot valuation, Credit Suisse believes. The broker downgrades to Underperform from Outperform.
The broker increases FY17 earnings estimates in line with recent guidance and, despite the rating change, notes several avenues for improvements to valuation are emerging. Target is raised to $37.41 from $34.90.
Ultimately, it took five downgrades in three years, note the analysts at Citi, but Flight Centre has -finally!- managed to publish an upwardly revised guidance for FY17; towards the top end of the previous range.
In addition, management has announced an efficiency program which should drive the PBT / TTV ratio from 1.6% to 1.9% over five years. Citi analysts note the supply-demand outlook for airfare pricing has clearly improved.
Citi has implemented double-digit earnings upgrades in FY18 and FY19, Target price moves to $40.00 from $30.90 as a result. Alas, following yesterday's jump in the share price, the analysts are also of the view the share price has factored in a rather optimistic organic growth profile and/or major cost out program. Downgrade to Sell from Neutral.
HANSEN TECHNOLOGIES LIMITED ((HSN)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/1/0
The company has made a sizeable acquisition with Enoro but Ord Minnett notes, unfortunately, it was combined with a downgrade to second half underlying earnings. Hence, the broker finds FY18 estimates end up relatively flat overall, post the capital dilution.
The broker has no problem with the Enoro business, or the price paid, but the magnitude of the earnings downgrade creates a reason to be cautious.
Ord Minnett no longer envisages sufficient upside to retain a Buy rating and downgrades to Accumulate. Target is reduced to $4.59 from $4.73.
MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Downgrade to Neutral from Buy by UBS and Downgrade to Neutral from Outperform by Credit Suisse and Downgrade to Hold from Add by Morgans .B/H/S: 1/5/0
The stock has been the top performer in Australia diversified financials in the year-to-date, UBS observes.
The company has delivered a 24% total return and investment outperformance has also been a factor, with key global equity funds 1.4% ahead of benchmark.
UBS now believes the stock is fairly valued and downgrades to Neutral from Buy. Target is raised to $28.40 from $26.40.
Weaker Australian equity markets have negatively affected earnings in June. Following around 20% outperformance in 2017 Credit Suisse is downgrading to Neutral from Outperform.
The broker envisages the current trading multiples are justified, considering the double-digit earnings growth outlook, but there is limited upside from this point. Target is reduced to $27.00 from $27.50.
Morgans suspects that a negative performance in June, lower-than-expected FY17 performance fees and further market volatility may mean the share price weakens in the short term.
The broker estimates that outperformance versus benchmark has been eroded in the primary funds in June and lowers its expectations for performance fees in FY17.
Rating is downgraded to Hold from Add. The broker believes any broader market volatility could provide a better entry point for longer-term investors. Target is raised to $27.95 from $27.80.
VILLAGE ROADSHOW LIMITED ((VRL)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/1
Box office numbers are weak, according to the latest industry data. Not just in Australia, but also in New Zealand and in Germany. In addition, price discounting seems to be forcing the whole industry into lower priced tickets in Australia.
Citi analysts are clearly worried, also because a revamped Hoyts seems to be grabbing more market share. It is Citi's long standing view that Hoyts now can offer a superior product at a comparable price to both Village Roadshow and Event Hospitality and Entertainment.
As risks are building for disappointment, Citi analysts have decided to downgrade Village Roadshow to Sell, and retain the Sell rating for Event. Target for Village Roadshow falls to $3.85. Earnings estimates have been cut.
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Negative Change Covered by > 2 Brokers
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CHARTS
For more info SHARE ANALYSIS: ANZ - ANZ GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED
For more info SHARE ANALYSIS: DRM - DEMETALLICA LIMITED
For more info SHARE ANALYSIS: DXS - DEXUS
For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED
For more info SHARE ANALYSIS: HSN - HANSEN TECHNOLOGIES LIMITED
For more info SHARE ANALYSIS: MFG - MAGELLAN FINANCIAL GROUP LIMITED
For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED
For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED
For more info SHARE ANALYSIS: SLR - SILVER LAKE RESOURCES LIMITED