Weekly Ratings, Targets, Forecast Changes

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies. For more info SHARE ANALYSIS: CBA

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 11 to Friday September 15, 2017
Total Upgrades: 7
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.41%; Hold 42.28%; Sell 16.31%

The Australian share market remains desperately in need of a powerful catalyst, but it isn't coming from the stockbroking community. For the week ending Friday, 15th September 2017, FNArena registered seven upgrades in rating by analysts, and some of these involve companies whose share price was considered to have become too cheap, but the other side of the ledger still showed eight downgrades.

CommBank was among those receiving an upgrade, but it was also the sole upgrade that only went up to Neutral. All others went to Buy, including for Macquarie, Link Administration, Downer EDI and Cleanaway Waste Management.

The flipside saw four downgrades (50%) sink to Sell ratings, including Bank of Queensland, Myer and Newcrest Mining.

Myer and Smartgroup took the honours for target price upgrades for the week, both enjoying a lift above 10%, followed by, at arm's length, Regis Resources, Cleanaway Waste Management and Downer EDI. The negative side only involves two names: Vocus Communications and Commbank, and both only experienced relatively minor cuts to consensus targets; less than -2% in both cases.

Myer also ranks second for positive revisions to earnings estimates, only beaten by Macquarie Atlas Group, followed by Orocobre, Senex Energy and Santos. While those adjustments remain sizeable, the negative side was again rather tepid. Sigma Healthcare was the week's biggest loser with a reduction of no more than -1.26%.

That's the good news story from September: earnings estimates have stopped falling, as have price targets.

Upgrade

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/6/2

Macquarie observes the bank's historical premium of around 10-15% has been eroded in recent months and CBA is now on a similar multiple to its major bank peers.

While recognising the risk of near-term underperformance, the broker envisages current valuations are more appealing.

While considering it too early to have an Outperform recommendation, the broker believes it justified to upgrade to Neutral from Underperform. Target is reduced to $78.00 from $80.50.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/0

The CEO has highlighted the robust and growing revenue, operating leverage and a strong balance sheet. Morgans revises its forecasts to align with the company's expectations. This results in around 2% upgrades to FY19-20 forecasts.

As well as a change in valuation methodology, this lifts the target to $1.60 from $1.37. The broker upgrades to Add from Hold given the positive momentum being generated.

DOWNER EDI LIMITED ((DOW)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/2/1

The company's FY17 result demonstrated the core business is performing well with a robust outlook.

While Deutsche Bank believes the company faces integration issues with the Spotless ((SPO)) acquisition and a potential downgrade to Spotless' FY18 guidance, this is considered well-known and reflected in the share price.

The broker upgrades to Buy from Hold and raises the target to $7.45 from $6.62.

HEALTHSCOPE LIMITED ((HSO)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/2/1

Ord Minnett believes Healthscope will face another challenging year as earnings are set to contract, given a number of Victorian hospitals are tracking below plan.

Value has emerged, however, as the stock is trading well below is 2014 IPO price despite adding more than $500m in new capacity.

The broker upgrades to Buy from Hold. Target is $2.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/0/1

Despite consistently delivering earnings that are ahead of expectations the shares steadily de-rated, UBS observes, amid concerns about stagnant funds administration revenue and the recent acquisition.

Nevertheless, UBS suggests super account consolidation headwinds will ease and the company's low fees versus the industry set it up to be the beneficiary of mergers.

UBS envisages compelling value in what it describes as a defensive and highly cash generating financial infrastructure exposure. Rating is upgraded to Buy from Neutral. Target is raised to $8.85 from $8.55.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/5/1

Macquarie Group has signalled that, as a result of stronger performance fees to be recognised in the first half, results are likely to be above the prior corresponding half and broadly aligned with the second half of FY17.

Following the update, UBS upgrades FY18 forecasts by 3% and expects net profit growth of 6.4%. As the shares have pulled back, the broker upgrades to Buy from Neutral.

Although the revenue outlook remains subdued, the broker continues to expect upside as operating leverage is delivered. Target is $91.

SUPERLOOP LIMITED ((SLC)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

In July 2016 Morgans downgraded Superloop to Hold on the belief investors were getting ahead of themselves in valuing the growth of a business that will take some time, leading to the possibility of disappointment. But investors have now weathered that "trough of disillusionment" (sic) and the broker believes operational risk is skewed to the upside.

The last twelve months have seen strong sales in Singapore, completion of the Hong Kong network, expansion of the Australian network, a strengthened sales team and a track record that is starting to deliver solid sales growth. Morgans upgrades to Add. Target rises to $2.81 from $2.15.

Downgrade

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 1/5/2

Macquarie continues to expect regional banks to benefit from mortgage re-pricing and an improved funding environment. The broker believes Bank of Queensland's recent re-rating more than captures the upside.

The broker also notes that slowing credit growth and potential longer-term headwinds to mortgage profitability do not bode well for the bank in the medium term.

Macquarie downgrades to Underperform from Outperform. Target unchanged at $12.50.

BREVILLE GROUP LIMITED ((BRG)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 0/4/0

Ord Minnett suggests the improved earnings outlook is increasingly reflected in the share price. On that basis, the broker downgrades to Hold from Accumulate and lowers the target to $11.00 from $11.50.

The broker remains upbeat on the prospects for earnings growth, noting some prospect of a working capital release, although offset by increasing capital expenditure.

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

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 5/2/0

Deutsche Bank considers the gold sector now fully valued. The ASX gold index is up 15% since the start of the reporting season and the Australian dollar gold price is up 4%.

The broker incorporates a proposed 3.75% WA state royalty and believes this is a marginal drag on sector valuations. Evolution Mining is downgraded to Hold from Buy on valuation. Target is $2.50.

ILUKA RESOURCES LIMITED ((ILU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/2

The company has announced a US$130/t increase to its zircon reference price, to US$1230/t, effective October 1. Credit Suisse's view on a continued recovery in mineral sands markets is unchanged and zircon supply is notably tight.

Yet, the broker believes the stock is fairly priced at current levels. Moreover, a stubbornly high Australian dollar could continue to be an impediment in 2018. Hence, a downgrade to Neutral from Outperform. Target is reduced to $9.85 from $9.90.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/2

Credit Suisse observes the results displayed declining sales and non-repeatable benefits from cost reductions at head office. FY18 forecasts are boosted by lower depreciation as a result of advancing store closure assumptions.

As there is a lack of evidence showing there is a core of stores for which sales revenue is growing, the outlook hinges mainly on accelerating cost reductions, in the broker's view.

Rating is downgraded to Underperform from Neutral. Target is reduced to $0.67 from $0.72.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/4/4

Deutsche Bank considers the gold sector now fully valued. The ASX gold index is up 15% since the start of the reporting season and the Australian dollar gold price is up 4%.

The broker incorporates a proposed 3.75% WA state royalty and believes this is a marginal drag on sector valuations. Newcrest is downgraded on valuation.

Rating is downgraded to Sell from Hold. Target is $19.

NORTHERN STAR RESOURCES LTD ((NST)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/4/2

Deutsche Bank considers the gold sector now fully valued. The ASX gold index is up 15% since the start of the reporting season and the Australian dollar gold price is up 4%.

The broker incorporates a proposed 3.75% WA state royalty and believes this is a marginal drag on sector valuations. Northern Star is downgraded to Sell from Hold on valuation. Target is reduced to $4.40 from $4.50.

SIRTEX MEDICAL LIMITED ((SRX)) Downgrade to Hold from Add by Morgans .B/H/S: 2/1/0

Morgans believes intense competition, ongoing legal battles and no specifics around a viable forward strategy limits the upside for the stock.

The broker downgrades to Hold from Add. Target is steady at $16.53.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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