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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Aug 14 2017

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 7 to Friday August 11, 2017
Total Upgrades: 8
Total Downgrades: 9
Net Ratings Breakdown: Buy 41.73%; Hold 41.94%; Sell 16.33%

A weaker share market that cannot find any sustained upward momentum amidst low trading volumes and continuous macro threats, and yet more broker downgrades than upgrades?

Welcome to the Australian equities market in August 2017. Local reporting season to date has been uninspiring, to say the least, with numerous financial updates released triggering a share price response to the downside.

It's not difficult to see why local fundies are hibernating on the sidelines. Too many time bombs hiding out there, and nobody can say with any certainty which one will go off, and when.

For the week ending Friday, 11th August 2017, FNArena registered eight upgrades in ratings from stockbroking analysts for ASX-listed companies against nine downgrades. The difference between the two is called Sims Metal Management. The unexplained departure of key management members left investors scratching their heads and three stockbrokers decided to downgrade in response.

Mantra Group, on the other hand, once again ventured onto the acquisition path and received two upgrades in response.

Six out of eight upgrades moved to Buy, but four out of the nine downgrades ended on Sell. The balance between total Buy ratings against total Neutral/Hold ratings is now firmly in favour of the latter. This could be construed as a positive omen for the share market overall, but probably not without the macro clouds disappearing.

Freshly merged Janus Henderson stole the show with its maiden financial report and the visible result is pole position among positive revisions to broker price targets. The 7.27% jump beat Northern Star Resources' 5.76% as well as CSR's 4% improvement. Transurban, despite a negative market reaction, also saw consensus target rising, by 3.21%.

On the negative side we find James Hardie (-5.89%), followed by Seven West Media (-2.56%) and AGL Energy (-2%). Note how amendments to the upside are larger than those to the downside.

Some big changes were recorded for earnings estimates. Back-from-the-brink Virgin Australia tops the table for positive amendments to earnings forecasts with a gain of no less than 74%, off a low base, with AGL Energy a distant second "only" enjoying a gain of 30%. In third spot we find Transurban, enjoying a 28% gain to market forecasts. Janus Henderson comes in fourth with a 23% gain.

The field of market disappointers is being led by Crown Resorts (-42%), surprisingly maybe followed by Aristocrat Leisure (-21%), then by WorleyParsons (-9%), and by Bellamy's (-4%). Here too, positive revisions outmuscle any negative re-adjustments.

It's early days still, and local reporting season will be getting up to speed as the week ahead progresses with the numbers only getting larger in the following two weeks.

Upgrade

ASX LIMITED ((ASX)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/4/4

Ord Minnett reviews the stock's business model and takes a more positive view of medium-term earnings growth prospects and a reduced discount rate that reflects a defensive nature of the company's earnings stream.

Ord Minnett believes the stock is currently fairly priced. Rating is upgraded to Hold from Lighten and the target raised to $52.79 from $48.50.

AVENTUS RETAIL PROPERTY FUND ((AVN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

Aventus' result was in line with expectation and FY18 guidance has been reiterated. Attention now turns to bedding down recent acquisitions, lease expiries and the roll-out of the company's development pipeline, Morgans suggests.

Aventus offers exposure to large format retail and the broker believes the fund is well placed to weather the challenge from online through organic growth and further opportunities to consolidate a fragmented market. A total shareholder return forecast of 15% leads Morgans to upgrade to Add.

Target rises to $2.46 from $2.45.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 6/1/0

Ord Minnett has undertaken a pre-report review and marked to market commodity prices. The broker has re-based costs to levels achieved post restructuring in FY16. Further potential value upside is envisaged from any additional efficiency benefits.

Rating is upgraded to Accumulate from Hold. Target is raised to $15 from $13.

INCITEC PIVOT LIMITED ((IPL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/1

Credit Suisse believes seasonal challenges and choppy fertiliser markets will persist in the near term. The company, with the announcement of Jeanne Johns as the new CEO, appears to the broker to have confirmed a focus on extracting the most from the existing asset base.

Given the share price drop, and on the basis of no significant deterioration in fertiliser markets and currency, Credit Suisse upgrades to Neutral from Underperform. Target is reduced to $3.29 to $3.37.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/5/0

Ord Minnett observes the business is stepping up its retail game and marketing expenditure is set to soar. It is also sponsoring the Australian test cricket series.

The company is launching what will likely be the largest closed-end investment vehicle ever raised in Australia. The broker observes the efforts are aimed at the under penetrated self-advised market.

The company is increasing its public profile in an effort to educate retail investors about the need to allocate toward global equities and that Magellan should be the go-to choice in this area.

Ord Minnett upgrades to Buy from Hold, as the market appears to be treating increased expenditure on marketing as a negative rather that it as an investment to strengthen the retail business. Target is raised to $29.18 from $28.13.

MANTRA GROUP LIMITED ((MTR)) Upgrade to Overweight from Equal-weight by Morgan Stanley and Upgrade to Buy from Neutral by Citi .B/H/S: 5/3/0

The company has acquired the Art Series portfolio of around a thousand rooms across seven properties. FY18-19 earnings accretion is forecast at 5-6%.

As a result, the company now boasts higher growth at a lower price and the broker upgrades to Overweight from Equal-weight. Industry view is: In-Line. Target is raised to $3.40 from $3.20.

Mantra has made its first major acquisition since the first half result, and will acquire The Art Series group of boutique hotels. It is unclear to Citi how these fit with the portfolio but considers operating such hotels is a reasonable strategy against Airbnb.

While some synergies exist, the broker believes others may be harder to achieve, compared with an acquisition of stock more closely related to existing product.

Citi returns to Buy from Neutral, given this unforeseen acquisition delivers FY19 accretion to earnings per share of around 5% and the share price has fallen -8% since beginning of the month. Target is raised to $3.25 from $3.15.

OROTONGROUP LIMITED ((ORL)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/0/0

The company is taking steps to address its losses by closing the Gap brand. Citi believes this is an important step and will allow the business to focus on the more profitable Oroton brand.

There are six stores trading and Citi estimates the brand contributed 20% to total sales for the group.

Citi upgrades to Buy, High Risk from Neutral, High Risk. Target is raised to $1.20 from $1.14.

Downgrade

AIR NEW ZEALAND LIMITED ((AIZ)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/2/2

Deutsche Bank observes the domestic environment is near cyclical highs and competition has been benign. Current tailwinds are expected to support FY18 earnings but rising competition and input cost inflation in FY19 will mean earnings start to decline.

Hence, with a high valuation starting point and negative momentum the broker downgrades to Sell from Hold. Target is raised to NZ$2.75 from NZ$2.45.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Downgrade to Hold from Add by Morgans .B/H/S: 0/5/3

Civil proceedings launched AUSTRAC against the bank create the risk of a financial penalty which materially affects its CET1 capital position, Morgans asserts.

The proceedings also lead to the risk of brand damage and that management will be focused away from creating value for shareholders.

The broker now factors in a higher risk premium to its valuation and downgrades to Hold from Add. Target is reduced to $83.00 from $87.50.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Buy by Citi and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/5/1

Ord Minnett has undertaken a pre-report review and marked to market commodity prices. The broker updates scrap forecasts in line with long-term iron ore forecasts of US$50/t.

The broker will also be seeking clarity at the results about the reasons for the surprise departures of the CEO and CFO.

Rating is downgraded to Hold from Accumulate as the stock looks fully valued. Target is reduced to $13.60 from $15.20.

Citi believes the departure of management – both the CEO and the CFO have resigned – without explanation creates investment risk.

The lack of public engagement by the board and the lack of detail in the announcement mean too many questions are unanswered ahead of the August 25 results.

The broker downgrades to Neutral from Buy. Target is reduced to $14.00 from $14.10.

The company has announced a trading update with earnings guidance between $180-185m for FY17 and has also announced the departure of its CEO and CFO. CEO Galdino Claro will be replaced by Alistair Field while Amit Patel will be acting CFO.

Macquarie was surprised at the sudden departures and suggests this indicates the succession strategy did not go to plan.  While the stock price moved aggressively on the news, the broker believes it is prudent to await more clarity and downgrades to Neutral from Outperform. Target is $14.80.

SEVEN WEST MEDIA LIMITED ((SWM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/3/2

The company is facing pressure on revenue share because of improved programming from Nine Entertainment ((NEC)) as well as a weaker advertising market.

Macquarie expects cost pressures will also weigh, given higher cost for the rights to AFL and tennis that are up for re-negotiation soon.

The negatives outweigh the benefits and the broker downgrades to Underperform from Neutral. Target is reduced to $0.75 from $0.85.

TRANSURBAN GROUP ((TCL)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0

It appears underlying financial performance in FY17 slightly missed Citi's expectation. Dividend guidance for FY18 (56c) is also slightly below the anticipated 57c but Citi analysts are not worried, arguing management has a habit of upgrading as the year progresses.

Equally important, Citi analysts note management remains confident current growth options can be funded by existing reserves. This statement is excluding the West Gate Tunnel Project (WGTP), which could require some raising.

All in all, there's enough growth in the pipeline to withstand higher bond yields, argue the analysts. They thus see further upside in the share price towards the revised 12 month valuation/target of $12.62 (was $12.25).

Additional upside of $0.86 will be received upon successfully achieving financial close for WGTP, the analysts add. Rating nevertheless downgraded to Neutral from Buy.

TRADE ME GROUP LIMITED ((TME)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/1/3

Deutsche Bank observes the competitive environment for the company's marketplace business has deteriorated significantly and the entry of Amazon into Australia, likely to be followed by New Zealand, will increase pressure.

The broker argues that the best option for the company, to ensure it remains relevant, is to launch an all-you-can-eat shipping service, even though this will depress earnings growth.

The shares are trading 21% above the broker's revised target price and the rating is downgraded to Sell from Hold.

Target is reduced to NZ$4.30 from NZ$5.41.

WEBJET LIMITED ((WEB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 3/1/1

The company will pay $330m to acquire JacTravel. A strong outlook and 20% accretion are not enough to entice Morgan Stanley into what it describes as an increasingly complex and opaque story.

JacTravel is a large acquisition to absorb and comes within a week of the auditor disagreeing with the accounting for a previous acquisition.

Morgan Stanley downgrades to Underweight from Equal-weight. Industry view: In line. Target is raised to $11.35 from $10.50.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ASX LIMITED Neutral Sell Ord Minnett
2 AVENTUS RETAIL PROPERTY FUND Buy Neutral Morgans
3 BLUESCOPE STEEL LIMITED Buy Neutral Ord Minnett
4 INCITEC PIVOT LIMITED Neutral Sell Credit Suisse
5 MAGELLAN FINANCIAL GROUP LIMITED Buy Neutral Ord Minnett
6 MANTRA GROUP LIMITED Buy Neutral Citi
7 MANTRA GROUP LIMITED Buy Neutral Morgan Stanley
8 OROTONGROUP LIMITED Buy Neutral Citi
Downgrade
9 AIR NEW ZEALAND LIMITED Sell Neutral Deutsche Bank
10 COMMONWEALTH BANK OF AUSTRALIA Neutral Buy Morgans
11 SEVEN WEST MEDIA LIMITED Sell Neutral Macquarie
12 SIMS METAL MANAGEMENT LIMITED Neutral Buy Macquarie
13 SIMS METAL MANAGEMENT LIMITED Neutral Buy Citi
14 SIMS METAL MANAGEMENT LIMITED Neutral Buy Ord Minnett
15 TRADE ME GROUP LIMITED Sell Neutral Deutsche Bank
16 TRANSURBAN GROUP Neutral Buy Citi
17 WEBJET LIMITED Sell Neutral Morgan Stanley

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AVN AVENTUS RETAIL PROPERTY FUND 67.0% 33.0% 34.0% 3
2 MTR MANTRA GROUP LIMITED 63.0% 38.0% 25.0% 8
3 NST NORTHERN STAR RESOURCES LTD -17.0% -33.0% 16.0% 6
4 AGL AGL ENERGY LIMITED 36.0% 21.0% 15.0% 7
5 JHG JANUS HENDERSON GROUP PLC. 75.0% 60.0% 15.0% 4
6 CSR CSR LIMITED -20.0% -33.0% 13.0% 5
7 IPL INCITEC PIVOT LIMITED 38.0% 25.0% 13.0% 8
8 BSL BLUESCOPE STEEL LIMITED 79.0% 71.0% 8.0% 7
9 ASX ASX LIMITED -50.0% -56.0% 6.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AIZ AIR NEW ZEALAND LIMITED -50.0% -25.0% -25.0% 4
2 SWM SEVEN WEST MEDIA LIMITED -40.0% -20.0% -20.0% 5
3 TME TRADE ME GROUP LIMITED -40.0% -20.0% -20.0% 5
4 AMP AMP LIMITED 21.0% 36.0% -15.0% 7
5 JHX JAMES HARDIE INDUSTRIES N.V. 43.0% 57.0% -14.0% 7
6 ORA ORORA LIMITED 56.0% 69.0% -13.0% 8
7 CBA COMMONWEALTH BANK OF AUSTRALIA -38.0% -25.0% -13.0% 8
8 FMG FORTESCUE METALS GROUP LTD 19.0% 31.0% -12.0% 8
9 TCL TRANSURBAN GROUP 50.0% 57.0% -7.0% 6
10 SGP STOCKLAND 7.0% 8.0% -1.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 JHG JANUS HENDERSON GROUP PLC. 50.107 46.710 7.27% 4
2 NST NORTHERN STAR RESOURCES LTD 4.757 4.498 5.76% 6
3 CSR CSR LIMITED 4.424 4.253 4.02% 5
4 TCL TRANSURBAN GROUP 12.580 12.189 3.21% 6
5 BSL BLUESCOPE STEEL LIMITED 13.964 13.679 2.08% 7
6 ORA ORORA LIMITED 3.196 3.148 1.52% 8
7 MTR MANTRA GROUP LIMITED 3.309 3.263 1.41% 8
8 ASX ASX LIMITED 49.584 49.048 1.09% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 JHX JAMES HARDIE INDUSTRIES N.V. 19.789 21.027 -5.89% 7
2 SWM SEVEN WEST MEDIA LIMITED 0.762 0.782 -2.56% 5
3 AGL AGL ENERGY LIMITED 26.481 27.044 -2.08% 7
4 AVN AVENTUS RETAIL PROPERTY FUND 2.420 2.447 -1.10% 3
5 AMP AMP LIMITED 5.597 5.654 -1.01% 7
6 CBA COMMONWEALTH BANK OF AUSTRALIA 80.600 80.925 -0.40% 8
7 IPL INCITEC PIVOT LIMITED 3.689 3.699 -0.27% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.866 0.495 74.95% 6
2 AGL AGL ENERGY LIMITED 153.757 117.886 30.43% 7
3 TCL TRANSURBAN GROUP 26.118 20.393 28.07% 6
4 JHG JANUS HENDERSON GROUP PLC. 328.397 266.721 23.12% 4
5 IFL IOOF HOLDINGS LIMITED 62.240 54.467 14.27% 5
6 CAR CARSALES.COM LIMITED 54.826 48.136 13.90% 8
7 ORA ORORA LIMITED 16.531 14.944 10.62% 8
8 TAH TABCORP HOLDINGS LIMITED 22.363 20.798 7.52% 4
9 ILU ILUKA RESOURCES LIMITED 20.591 19.306 6.66% 7
10 AVN AVENTUS RETAIL PROPERTY FUND 18.500 17.767 4.13% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 CWN CROWN RESORTS LIMITED 51.443 90.331 -43.05% 7
2 ALL ARISTOCRAT LEISURE LIMITED 66.890 85.343 -21.62% 6
3 WOR WORLEYPARSONS LIMITED 48.475 53.475 -9.35% 5
4 BAL BELLAMY'S AUSTRALIA LIMITED 21.600 22.500 -4.00% 3
5 IPL INCITEC PIVOT LIMITED 18.511 19.035 -2.75% 8
6 WEB WEBJET LIMITED 43.184 44.274 -2.46% 5
7 NWS NEWS CORPORATION 57.330 58.534 -2.06% 4
8 AMP AMP LIMITED 34.275 34.850 -1.65% 7
9 MTR MANTRA GROUP LIMITED 16.774 17.050 -1.62% 8
10 A2M THE A2 MILK COMPANY LIMITED 10.411 10.578 -1.58% 4

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