Weekly Ratings, Targets, Forecast Changes

This story features BRAMBLES LIMITED, and other companies. For more info SHARE ANALYSIS: BXB

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 18 to Friday September 22, 2017
Total Upgrades: 6
Total Downgrades: 6
Net Ratings Breakdown: Buy 41.90%; Hold 42.11%; Sell 15.99%

The local share market remains in desperate need of a positive catalyst, but it isn't coming from the domestic stockbroking fraternity. Sell-side analysts simply cannot see enough reason to upgrade their recommendations for ASX-listed stocks, while downgrades continue to either outnumber or match the few upgrades that are being issued.

The week ending on Friday, 22nd September 2017 saw upgrades and downgrades matching each other with six on either side. That's a relatively good week in 2017.

Four upgrades moved to Buy, while four downgrades moved to Neutral. Commbank, BT Investment and Domino's Pizza were amongst the upgrades, while Synlait Milk received two downgrades.

Monadelphous experienced the week's largest increase in price target (+11%), at arm's length followed by Boral and Downer EDI. There were larger adjustments on the negative side, with TPG Telecom the biggest loser, ahead of Myer, Virgin Australia and Greencross.

New Hope and Macquarie Atlas Group both enjoyed meaty upgrades to profit estimates, but Brickworks and TPG telecom each suffered double-digit cuts post their respective financial report releases. All in all, it would seem the best scenario for a local company is to not release financial results this time around.

The out-of-season trickle of company results continues this week with Premier Investment, Kathmandu and Nufarm.

Upgrade

BT INVESTMENT MANAGEMENT LIMITED ((BTT)) Upgrade to Add from Hold by Morgans .B/H/S: 3/3/0

The company has announced it expects direct costs of GBP5m for external research services. The cost will be directly absorbed by JO Hambro.

Factoring in these costs, and reviewing underlying assumptions, leads Morgans to downgrade forecasts for earnings per share by -4-7% in the outer years. Nevertheless, the broker considers the outlook solid and JO Hambro should continue to deliver solid performance fees over the medium term.

Rating is upgraded to Add from Hold. Target is reduced to $11.96 from $12.54.

BRAMBLES LIMITED ((BXB)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/0

While there are challenges ahead, Credit Suisse believes much of the downside risk is now priced into the shares. Rating is upgraded to Neutral from Underperform. Target is $8.90.

Competition in the US remains of concern to the broker, and there are not yet signs the whitewood pallet market is improving. While underlying demand for consumer staples is weak, the comparables are expected to get easier in November.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Add from Hold by Morgans .B/H/S: 1/5/2

Morgans believes the agreement to sell the life businesses in Australasia is a positive for shareholders. The broker calculates it will provide a 30 basis points uplift to the group return on tangible equity. The transaction is also expected to result in a pro–forma uplift to the FY17 CET1 capital ratio of around 70 basis points.

Morgans adjusts forecasts for the expected sale, assuming a completion date of September 2018. Given the increased risk of a loss of market share following the announcement of APRA's prudential inquiry into the bank the broker factors in a higher risk premium to valuation.

This results in a lowering of the target to $80 from $83. Rating is upgraded to Add from Hold.

DOMINO'S PIZZA ENTERPRISES LIMITED ((DMP)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/2

Morgans suspects the AGM trading update and first half results will show softer growth in Australasia, given the exceptionally strong base being cycled, but Europe should be accelerating.

Morgans takes a more positive view based on a re-jigging of the valuation rather than any specific upcoming catalysts.

Rating is upgraded to Add from Hold. Target is $47.21.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/6/0

Macquarie upgrades to Neutral from Underperform as management has signalled an intention to participate in further quota share reinsurance deals.

Macquarie notes, being more of a distributor means that, while earnings per share may decrease slightly, this should be more than offset by any multiple re-rating and thus deliver value to investors. Target increases to $5.90 from $5.50.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Upgrade to Add from Hold by Morgans .B/H/S: 1/4/0

Morgans considers the EUR440m price paid for an additional 44.86% interest in APRR is reasonable but suspects the market may continue to view the stock as cum capital raising.

The broker believes it's worth taking up the non-renounceable entitlement offer  of 1-for-6.62 at $5.12 per security. The FY18 distribution guidance of 23.5c implies 4.6% cash yield on this offer price.

Morgans upgrades to Add from Hold and reduces the target to $5.76 from $5.96.

Downgrade

CARSALES.COM LIMITED ((CAR)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/5/0

As the stock now offers a return of just 2% (see gap between share price and target) and appears to be racing ahead of earnings, Citi downgrades to Neutral from Buy. The broker considers the stock fully valued and now trading on FY18 price/earnings ratio of 25.6x.

Citi maintains a positive view of the earnings outlook and suspects that, with growth in earnings per share in the teens, it will not take long for earnings to catch up. Target is raised to $14.05 from $13.75.

EVOLUTION MINING LIMITED ((EVN)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/3/0

The company will sell Edna May for $40m plus a contingent future payment of up to $50m. Credit Suisse observes the transaction structure demonstrates the differential pricing that is applied to mature and challenging assets versus high-quality assets.

The divestment is consistent with the company's articulated strategy to improve the quality of its portfolio. The broker downgrades to Neutral from Outperform. Target is reduced to $2.22 from $2.30.

FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Downgrade to Sell from Neutral by UBS .B/H/S: 2/2/1

UBS observes the share price is up 30% since the FY17 result in May. The broker suggests that the risk is skewed to the downside, especially if OSA patent disputes or NAFTA negotiations do not go to plan and growth slows.

Accordingly, UBS lowers the rating to Sell from Neutral. The broker's market model points to a slowing in global revenue growth in OSA markets to around 7% and 6% in 2017 and 2018 respectively, from around 8% in 2016.

Target is raised to NZ$11.35 from NZ$9.85.

SYNLAIT MILK LIMITED ((SM1)) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 0/2/1

FY17 forecasts were delivered and the company has upgraded FY18 guidance slightly. Credit Suisse observes the company is in a stronger place than it was a year ago, but still subject to the same risks.

With the share price increasing significantly over the last year, Credit Suisse believes the market is focused more on the medium-term prospects rather than on the broader risks to the investment case.

Rating is downgraded to Underperform from Neutral on the perception of risk/reward. Target increases to NZ$4.74 from NZ$4.22.

Deutsche Bank saw a "solid" FY17 performance while guidance implies a "material step up" in profit for the year ahead. The majority of the good news story can be traced back to canned infant formula, a2 Milk ((A2M)) in particular.

Alas, the analysts also believe most of the good news is already in the price, hence their downgrade to Hold from Buy. Price target gains 5% to NZ$5.80.

TPG TELECOM LIMITED ((TPM)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/4/2

TPG's FY17 result showed good operational execution, Deutsche Bank suggests, providing for a guidance beat. But that's where the good news ends.

FY18 guidance was weaker than expected. Deutsche believes the stock could offer longer term appeal if it can deliver on its Aust and Singapore mobile plans but ahead of that the company faces two years of declining earnings growth and a lower dividend to preserve capital for investment.

The broker now expects a slower rate of FTTB subscriber growth and higher NBN and electricity costs. Target slashed to $5.80 from $8.20. Downgrade to Hold.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order Company New Rating Old Rating Broker Upgrade 1 BRAMBLES LIMITED Neutral Sell Credit Suisse 2 BT INVESTMENT MANAGEMENT LIMITED Buy Neutral Morgans 3 COMMONWEALTH BANK OF AUSTRALIA Buy Neutral Morgans 4 DOMINO'S PIZZA ENTERPRISES LIMITED Buy Neutral Morgans 5 INSURANCE AUSTRALIA GROUP LIMITED Neutral Sell Macquarie 6 MACQUARIE ATLAS ROADS GROUP Buy Neutral Morgans Downgrade 7 CARSALES.COM LIMITED Neutral Buy Citi 8 EVOLUTION MINING LIMITED Neutral Buy Credit Suisse 9 FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED Sell Neutral UBS 10 SYNLAIT MILK LIMITED Neutral N/A Deutsche Bank 11 SYNLAIT MILK LIMITED Sell N/A Credit Suisse 12 TPG TELECOM LIMITED Neutral Buy Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 BTT BT INVESTMENT MANAGEMENT LIMITED 50.0% 33.0% 17.0% 6 2 BXB BRAMBLES LIMITED 29.0% 13.0% 16.0% 7 3 DOW DOWNER EDI LIMITED 8.0% -8.0% 16.0% 6 4 SCP SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP -20.0% -33.0% 13.0% 5 5 CQR CHARTER HALL RETAIL REIT -20.0% -33.0% 13.0% 5 6 CBA COMMONWEALTH BANK OF AUSTRALIA -13.0% -25.0% 12.0% 8 7 IAG INSURANCE AUSTRALIA GROUP LIMITED 25.0% 13.0% 12.0% 8 8 CMW CROMWELL PROPERTY GROUP -50.0% -60.0% 10.0% 4 9 BLD BORAL LIMITED 50.0% 43.0% 7.0% 6 10 TCL TRANSURBAN GROUP 57.0% 50.0% 7.0% 7

Negative Change Covered by > 2 Brokers Order Symbol Company New Rating Previous Rating Change Recs 1 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED -63.0% -42.0% -21.0% 4 2 FPH FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED 20.0% 40.0% -20.0% 5 3 MYR MYER HOLDINGS LIMITED -21.0% -7.0% -14.0% 7 4 EVN EVOLUTION MINING LIMITED 57.0% 71.0% -14.0% 7 5 TPM TPG TELECOM LIMITED -19.0% -6.0% -13.0% 8 6 NHF NIB HOLDINGS LIMITED -33.0% -21.0% -12.0% 6 7 CAR CARSALES.COM LIMITED 38.0% 50.0% -12.0% 8 8 GXL GREENCROSS LIMITED 25.0% 33.0% -8.0% 4 9 BSL BLUESCOPE STEEL LIMITED 75.0% 79.0% -4.0% 6

Target Price

Positive Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 MND MONADELPHOUS GROUP LIMITED 12.252 11.021 11.17% 5 2 BLD BORAL LIMITED 7.142 6.907 3.40% 6 3 DOW DOWNER EDI LIMITED 6.713 6.575 2.10% 6 4 NHF NIB HOLDINGS LIMITED 5.670 5.583 1.56% 6 5 BWP BWP TRUST 2.808 2.776 1.15% 4 6 TCL TRANSURBAN GROUP 12.699 12.580 0.95% 7 7 IAG INSURANCE AUSTRALIA GROUP LIMITED 6.324 6.274 0.80% 8 8 CMW CROMWELL PROPERTY GROUP 0.933 0.926 0.76% 4 9 BXB BRAMBLES LIMITED 10.383 10.316 0.65% 7 10 SCP SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP 2.226 2.213 0.59% 5

Negative Change Covered by > 2 Brokers Order Symbol Company New Target Previous Target Change Recs 1 TPM TPG TELECOM LIMITED 5.588 6.510 -14.16% 8 2 MYR MYER HOLDINGS LIMITED 0.733 0.840 -12.74% 7 3 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.173 0.187 -7.49% 4 4 GXL GREENCROSS LIMITED 6.200 6.367 -2.62% 4 5 EVN EVOLUTION MINING LIMITED 2.520 2.553 -1.29% 7 6 BTT BT INVESTMENT MANAGEMENT LIMITED 11.702 11.798 -0.81% 6 7 CBA COMMONWEALTH BANK OF AUSTRALIA 78.163 78.538 -0.48% 8 8 CQR CHARTER HALL RETAIL REIT 4.164 4.170 -0.14% 5

Earning Forecast

Positive Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 NHC NEW HOPE CORPORATION LIMITED 23.950 18.013 32.96% 3 2 MQA MACQUARIE ATLAS ROADS GROUP 55.474 44.094 25.81% 5 3 SYR SYRAH RESOURCES LIMITED -8.690 -9.019 3.65% 5 4 SIG SIGMA HEALTHCARE LIMITED 5.828 5.628 3.55% 4 5 BLD BORAL LIMITED 35.720 35.149 1.62% 6 6 XRO XERO LIMITED -15.725 -15.978 1.58% 4 7 CMW CROMWELL PROPERTY GROUP 7.560 7.480 1.07% 4 8 GEM G8 EDUCATION LIMITED 24.975 24.725 1.01% 4 9 IAG INSURANCE AUSTRALIA GROUP LIMITED 36.850 36.563 0.78% 8 10 NHF NIB HOLDINGS LIMITED 26.386 26.214 0.66% 6

Negative Change Covered by > 2 Brokers Order Symbol Company New EF Previous EF Change Recs 1 2 BKW BRICKWORKS LIMITED 105.500 124.600 -15.33% 4 3 TPM TPG TELECOM LIMITED 39.641 46.416 -14.60% 8 4 TCL TRANSURBAN GROUP 25.101 26.118 -3.89% 7 5 EVN EVOLUTION MINING LIMITED 17.417 17.857 -2.46% 7 6 ANN ANSELL LIMITED 178.370 180.752 -1.32% 6 7 FPH FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED 31.087 31.477 -1.24% 5 8 GMG GOODMAN GROUP 45.814 46.243 -0.93% 7 9 IPL INCITEC PIVOT LIMITED 18.349 18.511 -0.88% 8 10 SCP SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP 14.950 15.050 -0.66% 5

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