Weekly Ratings, Targets, Forecast Changes

This story features ADAIRS LIMITED, and other companies. For more info SHARE ANALYSIS: ADH

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 28 to Friday September 1, 2017
Total Upgrades: 13
Total Downgrades: 17
Net Ratings Breakdown: Buy 41.12%; Hold 42.91%; Sell 15.97%

And the final week of the August reporting season remained all but loyal to the familiar script: more downgrades than upgrades for ASX-listed stocks. For the week ending September 1st, FNArena counted 13 upgrades versus 17 downgrades.

Seven of the downgrades went to Buy, whereas 13 of the 17 downgrades moved to Neutral/Hold.

Caltex and Regis Resources received multiple ratings changes for the week. Caltex received one upgrade and two downgrades. Regis Resources received one of each.

Qantas enjoyed the largest increase to consensus price target, up by 16.9%, handsomely beating ERM Power (+10%), Medibank Private (+6.1%) and Perpetual (+6%). On the opposing side of the ledger GBST suffered the largest cut, down by -34%, followed by Trade Me (-10%), Speedcast International (-8%) and Orocobre (-6.3%).

The underlying trend remained intact: on average, positive adjustments tend to be weightier than negative amendments.

This also remains the case for changes to earnings forecasts where Caltex takes the crown for the week, followed by Village Roadshow, Ardent Leisure and Independence Group. All of these stocks, and others, started off with low expectations to subsequently experience massive re-adjustments to the upside.

There were some hefty cuts nevertheless and the heftiest of them all was for Resolute Mining (-43%), while Galaxy Resources, NextDC, Santos, South32 and GBST all suffered sizeable reductions.

The week ahead should see Lake Placid materialise in the local share market. At least as far as stockbroking analysts' activity is concerned. It has been a busy and volatile month of August.

Upgrade

ADAIRS LIMITED ((ADH)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

FY17 results were in line with expectations following a recent upgrade to guidance. Morgans observes trading improved substantially into the end of the financial year and has continued into the start of FY18.

Guidance for $33-37m in EBIT for FY18 appears conservative to Morgans. The broker upgrades to Add from Hold and raises the target to $1.67 from $1.35.

ALUMINA LIMITED ((AWC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/2

First half numbers were solid and ahead of Credit Suisse estimates. The broker updates for commodity price forecasts and 2017 guidance, which is largely unchanged.

Marginally higher cash costs are assumed. The dividend yield is attractive and there are reasonably undemanding valuation multiples. Hence, the broker upgrades to Neutral from Underperform. Target is raised to $2.30 from $1.70.

BLACKMORES LIMITED ((BKL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/2/0

FY17 results were broadly in line with Ord Minnett. The broker believes a normalisation of one-offs and investment should lead to meaningful earnings growth. This view leads the broker to upgrade to Accumulate from Hold and raise the target to $115 from $110.

Ord Minnett believes the business faces near-term challenges related to distribution channels, pricing harmonisation and customer concentration which could lead to some volatility. However, the longer-term thematic of foreign consumer demand for Australian products should continue.

BT INVESTMENT MANAGEMENT LIMITED ((BTT)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/4/0

While JO Hambro's FY18 performance fee outlook has improved slightly over the past two months, further slippage in underperforming funds continues to impede medium term prospects and suggest downside impact to EPS forecasts, comment UBS analysts.

UBS sees only 3% growth in FY18, although this is expected to improve to 8% over FY19 and FY20. UBS upgrades to Neutral from Sell and target reduced to $11.00 from $11.15.

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 4/2/1

Ord Minnett upgrades to Accumulate from Lighten and raises the target to $35 from $28. The main reason for the changes includes a belief that refiner margins and transport fuel margins are likely to remain elevated.

Moreover, the broker has increased confidence in the opportunities in the convenience store business.

See also CTX downgrade.

GRAINCORP LIMITED ((GNC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/3/0

Credit Suisse believes earnings risks are modestly to the downside. The broker notes seasonal conditions have not deteriorated further and it remains comfortable with the risks to an 18.1mt east coast crop forecast.

While the risks are to the downside, investors are expected to be adequately rewarded by a higher pay-out ratio, and a recent decline in the share price produces a more favourable risk/reward.

Hence, Credit Suisse upgrades to Outperform from Neutral. Target is raised to $9.42 from $9.33.

GATEWAY LIFESTYLE GROUP ((GTY)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/0

FY17 results were in line with Macquarie and FY18 guidance is below expectations. The company experienced a difficult FY17 on the development side, downgrading expectations twice. FY18 guidance appears conservative and the broker suspects the rental side is under appreciated.

Macquarie envisages long-term growth in the manufactured home sector driven by positive trends such as an ageing population, financial pressure on retirees and housing affordability. Rating is upgraded to Outperform from Neutral. Target is $2.08.

HEALTHSCOPE LIMITED ((HSO)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/3/1

Morgan Stanley concedes long-term structural challenges but the low growth prospects in the near-term have been captured by the stock's performance.

While some balance sheet risk is conceived in FY19, this is two years away and the broker envisages remedial options and favourable covenant adjustments mitigate some of the risks.

Rating is upgraded to Equal-weight from Underweight. Price target is $1.80. In-Line industry view.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Hold from Reduce by Morgans .B/H/S: 2/3/3

FY17  net profit was ahead of Morgans, largely on higher investment income. FY18 outlook is more positive than the broker expected regarding health insurance gross profit margins and management expenses.

Morgans upgrades FY18 and FY19 estimates by 6-7%. Target is raised to $2.68 from $2.40. The broker is now more comfortable with the outlook and a narrower gap to valuation, thus upgrades to Hold from Reduce.

MANTRA GROUP LIMITED ((MTR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 6/2/0

FY17 results were in line with Credit Suisse estimates. While problematic markets are likely to continue, the broker believes this is well understood and offset by strength in other areas.

The broker also notes an estimated $50m of head room for internally-funded acquisitions, as the company is clearly active in a consolidating market.

Accordingly, with the stock trading at a reasonable price/earnings ratio the broker upgrades to Outperform from Neutral. Target is raised to $3.15 from $3.05.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/3/4

FY17 results were slightly behind the broker's forecasts. FY18 guidance is for 335koz to 365koz, all in sustaining cost of $940-$1,010/oz and growth capital spend of $23m.

The December quarter is expected to deliver McPhillamys maiden reserve and DFS. Negligible EPS changes until 2020, which is impacted by McPhillamys.

Credit Suisse upgrades the stock to Neutral from Underperform and target raised to $3.70 from $3.50.

See also RRL downgrade.

SELECT HARVESTS LIMITED ((SHV)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/2/0

The company's weak FY17 results were in line with recently downgraded guidance. Cash flows were materially lower and gearing is too high in Morgans' opinion.

Further almond orchard sale and leaseback opportunities or capital raising to restore the balance sheet cannot be ruled out by the broker. FY18 production guidance was lower than expected prompting Morgans to lower FY18 forecasts by -31% and FY19 forecasts by -24.1%.

Rating is upgraded to Hold from Reduce and target reduced to $4.00 from $4.05.

TOX FREE SOLUTIONS LIMITED ((TOX)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/3/0

FY17 results were broadly in line with UBS estimates. FY18 should conclude the transition away from more volatile, low quality resource construction earnings, to be replaced by the full year contribution from the health waste business.

The broker recognises essentially flat NPAT growth in FY18, but sees three year EPS CAGR of +10% through FY19 to FY21.

UBS upgrades to Buy from Neutral  and lowers the target price to $2.50 from $2.55.

Downgrade

AINSWORTH GAME TECHNOLOGY LIMITED ((AGI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/1/1

FY17 results were ahead of guidance. Macquarie is encouraged by the outlook for FY18, especially with the launch of the video cabinet and accompanying games in August. North America was disappointing but forward orders imply FY18 growth.

The stock has recently re-rated to reflect the recent business improvement. Nevertheless, Macquarie is cautious to capitalise growth beyond FY18, given the company's high exposure to outright sales and poor visibility in the Latin American market.

Rating is downgraded to Neutral from Outperform. Target is raised to $2.22 from $2.04.

AUSDRILL LIMITED ((ASL)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 0/1/0

After posting a solid FY17 result, Ausdrill has raised new capital though both equity and debt in order to capitalise on improving conditions domestically and a strong pipeline on offer in Africa. Deutsche Bank expects new contract wins over the next year.

Execution is critical, with several large projects ramping up over the next six months and contract renewals due. Deutsche sees strong earnings momentum ahead but also a full valuation, hence a downgrade to Hold. Target falls to $2.37 from $2.40.

AVITA MEDICAL LTD ((AVH)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

FY17 net loss was in line with expectations. Sales are moving in the right direction but Morgans is frustrated by the slow growth. A new CEO took the helm in May aiming for a more clinically-focused approach which the broker suspects will pressured near-term sales.

Although clinical data and cost justification should underpin a commercial strategy, Morgans believes to build a solid foundation will take many years and be hampered by tight capital controls.

The broker no longer targets FY19 profitability and downgrades to Hold from Add. Target is reduced to 7.5c from $0.28.

BORAL LIMITED ((BLD)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/2/1

Boral's FY17 results were in line with Citi's expectations. FY18 guidance was disappointing, with the company expected to face -$15m to -$20m in energy headwinds and -$15m less property profits.

Combined with elevated D&A guidance, mainly at Headwaters, Citi downgrades core EPS forecasts by -12% in FY18, -11% in FY19 and -9% in FY20.

Citi downgrades to Sell from Neutral and lowers the target price to $6.20 from $7.09.

CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Buy by UBS and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/2/1

First half results were broadly in line with UBS forecasts. Caltex stated that the impact of losing the Woolworths ((WOW)) fuel volumes would be in the order of $150m, higher than previously expected.

The broker has raised CY17 EPS forecast by 9.5%, CY18 forecast by 11.5% and CY19 by 4.4%. However, UBS sees a large earnings issue ahead associated with the loss of volumes and downgrades the stock to Neutral from Buy. Target raised to $33.40 from $33.00.

First half results were in line with expectations. Macquarie likes the growth in diesel volumes and marketing & supply earnings. The broker did not like the loss of non-fuel income affected by franchisee wage under-payment issues.

Incremental news flow around strategy underwhelmed the broker. Rating is downgraded to Neutral from Outperform. Target rises to $33.85 from $32.65.

See also CTX upgrade.

HOTEL PROPERTY INVESTMENTS ((HPI)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

FY17 results were in line with guidance, with no revaluations announced. FY18 distribution guidance of 19.6c was provided, below the broker's forecast and implying flat growth on the previous corresponding period.

Incorporating FY18 guidance into its forecasts, Morgans cuts FY18 DPS forecast by -1.8% and FY19 DPS forecast by -1%.

The broker has downgraded the stock to Hold from Add and cut price target to $3.02 from $3.06.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/1

FY17 results were in line with prior guidance. Credit Suisse had hoped for an update on the grade performance at Nova to learn whether the positive reconciliation relative to the downgraded resource has been maintained.

The broker also suspects management has little idea of the outlook for Tropicana. FY18 is expected to be a transformational year. Rating is downgraded to Neutral from Outperform. Target is raised to $3.35 from $3.30.

MCMILLAN SHAKESPEARE LIMITED ((MMS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/0

FY17 earnings were roughly in line with Macquarie. The broker notes strong organic growth in group remuneration services. The retail financial services division is unclear because of regulatory and market uncertainty.

Rating is downgraded to Neutral from Outperform on valuation grounds. Target is raised to $15.46 from $13.20.

MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/0/6

FY17 results were broadly in line with estimates and Morgans notes no formal guidance was provided for FY18. The outlook suggests some revenue growth is possible. EBITDA margins are expected to remain under pressure.

Morgans appreciates the resource sector has stabilised, and remains bullish on the sector, but cannot justify the current valuation and downgrades to Reduce from Hold. Target is raised to $11.32 from $10.95.

QANTAS AIRWAYS LIMITED ((QAN)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 4/0/1

FY17 results were in line with guidance. Ord Minnett downgrades to Sell from Hold, noting the strong gains in 2017. The broker cannot justify any other recommendation at the current share price.

To support current valuations, the broker estimates further domestic airfare increases in the order of 10% are required and such a view appears optimistic. Target is raised to $4.55 from $4.15.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Hold from Add by Morgans .B/H/S: 1/5/0

FY17 underlying profit was in line with estimates. Morgans observes the domestic business has shown resilience despite industry volatility.

Regardless of the fundamentals and domestic business, headwinds are intensifying in the rest of the world and the broker expects this may handicap the near-term performance.

Morgans downgrades to Hold from Add. Target price is reduced to $74.51 from $85.81.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Reduce from Hold by Morgans .B/H/S: 1/3/4

FY17 gold production was strong with earnings ahead of estimates. The company continues to increase its expenditure on resource development and exploration to replace ore feeds.

Morgans believes the stock appeals as a well-run, consistent and low-cost Australian gold producer.

Nevertheless, given the discrepancy between the broker's valuation and the current share price the rating is downgraded to Reduce from Hold. Target is raised to $3.28 from $3.00.

See also RRL upgrade.

SOUTH32 LIMITED ((S32)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 4/4/0

Macquarie upgrades near-term base metal and bulk commodity price forecasts. The most significant change is the iron ore price and FY18 estimates rise 27% to US$63/t.

The broker finds there is now a clear gap with larger rivals Rio Tinto ((RIO)) and BHP Billiton ((BHP)) and downgrades South32 to Neutral from Outperform. Target is reduced to $3.10 from $3.20.

SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/2/0

First half results were largely in line with Macquarie's expectations. The Harris CapRock acquisition drove revenue growth but challenging market conditions continued.

Macquarie observes positive early progress and synergies from the acquisition but awaits further developments and subsequent de-risking at the final results.

Rating is downgraded to Neutral from Outperform. Target is reduced to $3.63 from $4.83.

SPARK INFRASTRUCTURE GROUP ((SKI)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/5/1

Spark Infra's result missed Deutsche Bank on lower regulated revenue than regulation suggested, and increased costs. The dividend remains solid but cash coverage has now reduced upside risk to future dividends, the broker notes.

Given the share price run of late, the stock is trading in line with Deutsche's valuation. Downgrade to Hold. Target rises to $2.60 from $2.55.

SERVCORP LIMITED ((SRV)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/1/0

Despite a beat on FY17 earnings, UBS has downgraded Servcorp to Neutral from Buy and lowered the target price to $6.15 from $6.75.

The broker believes the company is well placed to increase occupancy, however a ramp up in competition leaves the broker cautious in the short to medium term.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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