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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Sep 11 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 September 4 to Friday September 8, 2017
Total Upgrades: 9
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.13%; Hold 42.72%; Sell 16.15%

It has taken the end of the August reporting season, and the usual lull in the first week thereafter, to -finally!- register a full week in which broker upgrades for individual ASX-listed stocks outnumbered downgrades, and it still remained a tight affair.

By Friday, 8th September 2017, FNArena's register showed nine upgrades versus eight downgrades. Senex Energy winning a tender in Queensland was sufficient for two upgrades to Buy. Regis Resources' share price refusing to retreat was good for two downgrades. Nine upgrades jumped to Buy with long troubled Wellard the only one that had to settle for Neutral/Hold.

Regis Resources and Suncorp were the sole recipients for downgrades to Sell.

As expected, things quietened down substantially for amendments to valuations/price targets and earnings estimates. Senex Energy enjoyed the largest jump in consensus price target, up by 15%, handsomely beating Monadelphous and a few others. On the flipside, Orocobre and Alacer Gold both saw declines by -3%-plus.

Positive changes are on average larger than negative ones.

The latter observation also goes for changes to forecasts. Ardent Leisure takes the honours for upward adjustment with a big leap (+300%), followed by Orocobre, Macquarie Atlas and Webjet. On the negative side, NextDC suffered a blow of -30%, beating Senex Energy, Beach Energy and Baby Bunting.

It should be a relatively easy-going week ahead, with analysts now starting to prepare for out-of-season corporate results, starting with Myer on Thursday.

Upgrade

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Upgrade to Add from Hold by Morgans .B/H/S: 5/1/1

Industry data has shown the Western Australia new vehicle sales grew by 4.2% in August, the second month of positive growth in four months. The company faced a number of challenges in FY17 relating to finance impacts from tightening consumer credit conditions  and declining vehicle sales.

Morgans suspects the risk/reward is now to the upside. The broker likes the strong exposure to an eventual upswing in the WA economy and believes it's only a matter of time before trading conditions improve. Rating is upgraded to Add from Hold, target is $3.60.

BABY BUNTING GROUP LIMITED ((BBN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/2/0

The exit of another competitor in Queensland, Bubs, is an opportunity for Baby Bunting, Morgans believes. There is the potential to take on a couple of the leases where Baby Bunting does not have a presence.

In the short term the clearance of Bubs stock may impact sales growth for Baby Bunting and, therefore, margin but the broker believes the market will look through this for the medium-long-term.

Rating is upgraded to Add from Hold, as it is a reminder of the company's strengthening competitive position and the strong growth that is still on offer. Target rises to $1.96 from $1.80.

HANSEN TECHNOLOGIES LIMITED ((HSN)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/1/0

Ord Minnett upgrades to Buy from Accumulate. The stock has significantly de-rated through 2017 and is now trading at levels that are lower than at any point since the broker started coverage.

Ord Minnett suspects the stock is now set to deliver a strong cash result in the first half. As Hansen is typically a mean reversion business, the broker envisages 15% upside to base case.

Price target is reduced to $3.93 from $3.98.

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/2

Citi analysts have upgraded to Buy from Neutral in response to recent share price weakness. Target price is kept at $14. The analysts find Suncorp shares have by now fallen far enough to account for the FY18 margin headwinds.

Also, at present level Citi thinks the shares offer an attractive entry point to gain leverage to the improving Australian general insurance market. The banking operations should stay reasonably strong, the analysts add.

They see better value on offer than in Insurance Australia Group ((IAG)).

See also SUN downgrade.

SENEX ENERGY LIMITED ((SXY)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/0

The company has been granted the Queensland government's domestic gas acreage in the Surat Basin. The project is expected to deliver first gas by 2019.

Macquarie believes this is a gift from the Queensland government and far better than any other project in the company's portfolio. The broker believes the project has the potential to deliver around 2mmboe per year at plateau rates, double the company's current production.

The main risk remains regarding reserve development is limited to wells that have been drilled on the permit to date. Rating upgraded to Outperform from Neutral. Target raised to $0.35 from $0.30.

The Queensland government has awarded the company an acreage position in the Surat Basin for nil cost and Citi analysts consider it favourably, pointing out the positioning is surrounded by Tier 1 projects.

The company expects to obtain regulatory approvals by mid-CY18 with first gas deliveries expected in CY19. This is sufficient for Citi to upgrade to Buy/High Risk from Neutral. Target price gains 5c to 35c.

The analysts explain their unrisked valuation has lifted to $0.51/shr, but in a bull-case scenario whereby the company performs better in terms of CSM costs, reserves and the gas price this valuation could well rise above $0.60/shr.

TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/2

Credit Suisse believes the majority of the negative news flow is now out of the way for Telstra and reflected in the share price.

The broker believes the new dividend policy and the creation of a special dividend pool provides flexibility for the company to maintain a $0.22 per share dividend for at least the next four years.

The broker upgrades to Outperform from Neutral. Target is raised to $4.00 from $3.90.

VOCUS COMMUNICATIONS LIMITED ((VOC)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 1/6/1

Ord Minnett has now more confidence around FY18 guidance and finds the current level an attractive entry point for the stock. Rating is upgraded to Accumulate from Hold. Target is reduced to $3.00 from $3.30.

For a company expected to be able to grow core operating earnings at low-to-mid-single digits in the near and medium term Vocus is the broker's preferred stock in the sector following a reset of expectations.

This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

WELLARD LIMITED ((WLD)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/2/0

FY17 results were extremely weak, Morgans observes, although in line with recent guidance.

FY18 is expected to be another challenging year. Uncertainty remains high and the broker does not expect the company to return to profitability until FY19.

Morgans suggests that further asset sales and/or new equity raisings may be necessary. The broker suspects the company is through the worst and upgrades to Hold from Reduce. Target is reduced to $0.11 from $0.15.

Downgrade

ASTRO JAPAN PROPERTY TRUST ((AJA)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

The company has agreed with hedge fund Blackstone to acquire its $1.1bn Japanese portfolio, consisting mostly of greater Tokyo B-grade retail and office assets. Ord Minnett expects the vote to be approved by unit holders on September 13.

Ord Minnett's suspects a superior alternative proposal is highly unlikely. As the stock is now trading at the present value of the proposed transaction price, the rating is downgraded to Hold from Buy and the target raised to $7.25 from $7.20.

This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

ALACER GOLD CORP ((AQG)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 4/1/0

Ord Minnett observes the miners have had a good run, yet consensus estimates may be too low following the broad-based rally in commodities. The broker envisages room to grind higher in the short term.

Nevertheless, the broker is also wary that prices sit above cost curve support and may provide incentives for incremental supply.

Rating is downgraded to Hold from Speculative Buy. Target is reduced to $2.30 from $2.90.

This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/2/2

Ord Minnett observes the miners have had a good run, yet consensus estimates may be too low following the broad-based rally in commodities. The broker envisages room to grind higher in the short term.

Nevertheless, the broker is also wary that prices sit above cost curve support and may provide incentives for incremental supply.

Iluka's rating is downgraded to Hold from Accumulate. Target is $10.

This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/5/1

The Western Australian government has proposed an increase in the gold royalty to 3.75% from 2.50%. Macquarie observes high-cost mines will feel the pinch, as a mine with a cash margin of just $100/oz or $200/oz would experience cash profits pre-tax falling -20% and -10% respectively.

The proposed royalty increase has a negligible impact on the earnings outlook for higher-margin producers. However, strong share price performance in recent weeks has pushed some stocks beyond their targets. Macquarie downgrades Northern Star to Neutral from Outperform. Target is $5.40.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/3/5

The Western Australian government has proposed an increase in the gold royalty to 3.75% from 2.50%. Macquarie observes high-cost mines will feel the pinch, as a mine with a cash margin of just $100/oz or $200/oz would experience cash profits pre-tax falling -20% and -10% respectively.

The proposed royalty increase has a negligible impact on the earnings outlook for higher-margin producers. However, strong share price performance in recent weeks has pushed some stocks beyond their targets.

Rating is downgraded to Underperform from Neutral. Target is $3.40.

Ord Minnett observes the miners have had a good run, yet consensus estimates may be too low following the broad-based rally in commodities. The broker envisages room to grind higher in the short term.

Nevertheless, the broker is also wary that prices sit above cost curve support and may provide incentives for incremental supply.

Rating is downgraded to Hold from Accumulate.  Target is raised to $4.10 from $4.00.

This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/0

The Western Australian government has proposed an increase in the gold royalty to 3.75% from 2.50%. Macquarie observes high-cost mines will feel the pinch, as a mine with a cash margin of just $100/oz or $200/oz would experience cash profits pre-tax falling -20% and -10% respectively.

The proposed royalty increase has a negligible impact on the earnings outlook for higher-margin producers. However, strong share price performance in recent weeks has pushed some stocks beyond their targets.

Rating is downgraded to Neutral from Outperform. Target is $1.50.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 4/2/2

Macquarie  has a negative outlook on the Australian general insurance sector.

Macquarie believes the company's underlying margins will take a structural step down in FY18 as reinsurance changes and Queensland CTP reform flow through the book.

The broker expects a -30 basis points headwind to margins from the changes to the reinsurance allowance.  Rating is downgraded to Underperform from Neutral. Target  is reduced to $12.70 from $14.50.

See also SUN upgrade.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AUTOMOTIVE HOLDINGS GROUP LIMITED Buy Neutral Morgans
2 BABY BUNTING GROUP LIMITED Buy Neutral Morgans
3 HANSEN TECHNOLOGIES LIMITED Buy Buy Ord Minnett
4 SENEX ENERGY LIMITED Buy Neutral Macquarie
5 SENEX ENERGY LIMITED Buy Neutral Citi
6 SUNCORP GROUP LIMITED Buy Neutral Citi
7 TELSTRA CORPORATION LIMITED Buy Neutral Credit Suisse
8 VOCUS COMMUNICATIONS LIMITED Buy Neutral Ord Minnett
9 WELLARD LIMITED Neutral Sell Morgans
Downgrade
10 ALACER GOLD CORP Neutral Buy Ord Minnett
11 ASTRO JAPAN PROPERTY TRUST Neutral Buy Ord Minnett
12 ILUKA RESOURCES LIMITED Neutral Buy Ord Minnett
13 NORTHERN STAR RESOURCES LTD Neutral Buy Macquarie
14 REGIS RESOURCES LIMITED Sell Neutral Macquarie
15 REGIS RESOURCES LIMITED Neutral Buy Ord Minnett
16 SARACEN MINERAL HOLDINGS LIMITED Neutral Buy Macquarie
17 SUNCORP GROUP LIMITED Sell Neutral Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SXY SENEX ENERGY LIMITED 67.0% 33.0% 34.0% 6
2 BBN BABY BUNTING GROUP LIMITED 50.0% 25.0% 25.0% 4
3 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 50.0% 36.0% 14.0% 7
4 MND MONADELPHOUS GROUP LIMITED -86.0% -100.0% 14.0% 7
5 JHX JAMES HARDIE INDUSTRIES N.V. 50.0% 43.0% 7.0% 6
6 VOC VOCUS COMMUNICATIONS LIMITED -6.0% -13.0% 7.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 RRL REGIS RESOURCES LIMITED -63.0% -31.0% -32.0% 8
2 ORE OROCOBRE LIMITED 33.0% 60.0% -27.0% 6
3 AQG ALACER GOLD CORP 80.0% 100.0% -20.0% 5
4 ILU ILUKA RESOURCES LIMITED 14.0% 21.0% -7.0% 7
5 BWP BWP TRUST -80.0% -75.0% -5.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SXY SENEX ENERGY LIMITED 0.358 0.310 15.48% 6
2 MND MONADELPHOUS GROUP LIMITED 11.021 10.475 5.21% 7
3 BBN BABY BUNTING GROUP LIMITED 1.928 1.888 2.12% 4
4 RRL REGIS RESOURCES LIMITED 3.480 3.433 1.37% 8
5 BWP BWP TRUST 2.776 2.770 0.22% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ORE OROCOBRE LIMITED 4.173 4.316 -3.31% 6
2 AQG ALACER GOLD CORP 3.760 3.880 -3.09% 5
3 VOC VOCUS COMMUNICATIONS LIMITED 2.679 2.716 -1.36% 8
4 JHX JAMES HARDIE INDUSTRIES N.V. 19.653 19.789 -0.69% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 AAD ARDENT LEISURE GROUP 3.380 -1.620 308.64% 7
2 ORE OROCOBRE LIMITED 13.020 7.815 66.60% 6
3 MQA MACQUARIE ATLAS ROADS GROUP 44.094 28.510 54.66% 6
4 WEB WEBJET LIMITED 51.722 43.184 19.77% 5
5 MIN MINERAL RESOURCES LIMITED 121.075 118.575 2.11% 3
6 RRL REGIS RESOURCES LIMITED 31.785 31.423 1.15% 8
7 FPH FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED 31.477 31.301 0.56% 5
8 WES WESFARMERS LIMITED 254.238 253.113 0.44% 8
9 TOX TOX FREE SOLUTIONS LIMITED 13.620 13.580 0.29% 4
10 RIO RIO TINTO LIMITED 586.669 585.388 0.22% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 NXT NEXTDC LIMITED 3.905 6.160 -36.61% 6
2 SXY SENEX ENERGY LIMITED -0.221 -0.204 -8.33% 6
3 BPT BEACH ENERGY LIMITED 7.097 7.430 -4.48% 6
4 BBN BABY BUNTING GROUP LIMITED 11.450 11.950 -4.18% 4
5 STO SANTOS LIMITED 12.723 13.059 -2.57% 8
6 BLD BORAL LIMITED 35.149 35.959 -2.25% 7
7 SUN SUNCORP GROUP LIMITED 86.750 88.388 -1.85% 8
8 IAG INSURANCE AUSTRALIA GROUP LIMITED 36.563 37.063 -1.35% 8
9 CGF CHALLENGER LIMITED 66.743 67.638 -1.32% 8
10 SIG SIGMA HEALTHCARE LIMITED 5.628 5.700 -1.26% 4

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