Weekly Ratings, Targets, Forecast Changes

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

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 October 30 to Friday November 3, 2017
Total Upgrades: 10
Total Downgrades: 9
Net Ratings Breakdown: Buy 41.36%; Hold 43.11%; Sell 15.53%

Finally! The week ending Friday, 3rd November 2017, provided more rating upgrades for individual ASX-listed stocks than downgrades from the eight stockbrokers monitored daily by FNArena, albeit the difference was one move only; ten versus nine.

A mining sector update by Credit Suisse on Friday made the difference. Otherwise, Orocobre was the sole recipient of two upgrades during the week. Beach Energy was the sole receiver of two downgrades.

Mining and energy stocks were prominently in the action during the week, but there was plenty of action elsewhere with upgrades for Macquarie, Link Administration and Woolworths, while iSentia, Fairfax Media and Blue Sky Alternative Investments were downgraded.

Blackmores enjoyed the largest gain in price target, beating Orocobre, Downer EDI and Incitec Pivot, whereas perennial disappointer iSentia grabbed the wooden spoon for a -44% fall in consensus price target in an otherwise sparsely populated flip side of the coin.

Beach Energy and Link Administration both sit on top of the table for positive revisions to earnings estimates, beating Orocobre, Origin Energy and Oz Minerals. Reductions proved significantly larger in size, with iSentia's forecasts suffering most (-34.5%), followed by Alacer Gold, OceanaGold and Forescue Metals; they all suffered in double digit percentages.

National Australia Bank also sits on the negative side for earnings estimates for the week; characterising what has been a dominant theme this banking reporting season. Banks' results are solid, but far from spectacular. Most importantly; they seem to have lost the ability to wow and surprise to the upside.

The big question for investors is: how is this inability among the banks impacting on the share market's prospect in general?

Upgrade

CSR LIMITED ((CSR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/4/1

First half results were above Macquarie's expectations. The most positive aspect was building products, and the broker suggests it could have been even better if it weren't for the expensing of capital investment and the impact of sharply rising electricity costs.

Macquarie upgrades to Outperform from Neutral as the sell-off following the solid result was a surprise and presents an opportunity. Target is raised to $5.15 from $4.40.

ESTIA HEALTH LIMITED ((EHE)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/2/0

The operating performance has improved, the balance sheet strengthened and there is a focus on growth. Along with this, Morgan Stanley notes a more favourable regulatory environment.

Whilst more positive, valuation and low growth holds the broker back.  Rating is upgraded to Equal-weight from Underweight. Target is raised to $3.45 from $2.30. In-Line industry view.

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

The company remains confident of cost synergies from the Capita Asset Services acquisition and Credit Suisse envisages potential upgrades to synergy targets over the coming year.

Maiden guidance for fund administration revenues to be flat in FY18 is ahead of the broker's expectations for a -3% decline.

Rating is upgraded to Neutral from Underperform. Target is raised to $8.50 from $7.90.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/1

Credit Suisse upgrades FY18 earnings estimates by 1% following the first half result. Despite the fact earnings growth was narrowly based, the broker observes profitability continues to improve and the balance sheet is being replenished.

Rating is upgraded to Outperform from Neutral and the target raised to $105 from $100.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Neutral by Citi and Upgrade to Neutral from Underperform by Macquarie .B/H/S: 4/1/1

September quarter production was soft, as expected, although still below Citi's estimates. The cash margin profile is considered to be better and the balance sheet has been de-leveraged.

Along with improving fundamentals in the lithium market, Citi no longer views the stock as high risk and upgrades to Buy from Neutral. Target is raised to $5.50 from $3.90.

Orocobre's Sep Q production and sales missed forecasts, driving higher costs. The company has maintained first half production guidance but this would require a record second quarter, Macquarie notes.

A strong October supports guidance, and management is confident costs will fall in FY19 when the CO2 circuit is installed. Before then, better volumes are needed. The share price fall has taken the stock down to where Macquarie sees fair value, hence an upgrade to Neutral.

Target rises to $4.97 from $4.90.

OZ MINERALS LIMITED ((OZL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/1

A general sector update has triggered an upgrade to Neutral from Underperform while the price target lifts to $7.90 from $7.30. Earnings estimates have received a boost.

SANDFIRE RESOURCES NL ((SFR)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/7/0

A general sector review and update has led to the upgrade to Neutral from Underperform, while the price target lifts to $5.60 from $4.90. A lift in copper price forecasts translates into significantly higher forecasts for Sandfire Resources.

VICINITY CENTRES ((VCX)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/1/1

Credit Suisse analysis shows that, on average, net tangible asset backing per security is up by 28% over the past three years across the large-cap A-REITs.

Some 68% of this upside has been driven by cap rate compression. At some point the cycle will turn and reversion to June 2014 cap rates wold mean an average NTA decline of -15%.

Credit Suisse suggests there is limited downside from the cyclical cap rate reversion for Vicinity Centres. Rating is upgraded to Neutral from Underperform. Target is $2.65.

WOOLWORTHS LIMITED ((WOW)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/2/3

The September quarter update suggests to Credit Suisse that food deflation remains a risk to the outlook.

The main issue for the broker is whether the competitive environment is stabilising enough to allow for meaningful margin expansion over the medium term.

Following a period of underperformance in the share price, the broker upgrades to Neutral from Underperform. Target is raised to $25.31 from $25.17.

Downgrade

AWE LIMITED ((AWE)) Downgrade to Sell from Neutral by UBS .B/H/S: 1/3/2

September quarter production was ahead of expectations, up 16% and driven by strong east coast gas. However, UBS observes, this is not sufficient to change full year guidance of 2.5-2.7mmboe.

The broker attributes the 16% rally in the share price over the past two weeks to recent good news at Waitsia.

However, this appears overdone and UBS downgrades to Sell from Neutral. Target is lowered to $0.47 from $0.45.

BEADELL RESOURCES LIMITED ((BDR)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

While Beadell's Sep Q production and costs showed big improvement on the June Q, they still both fell well short of Macquarie's expectations. The company is now guiding to the lower end of the production range but this will require a big improvement in the Dec Q, the broker notes.

It is not beyond the realms, but falling short could put mill upgrade funding at risk, and this is critical, Macquarie suggests, to improving the long term outlook for Tucano. Downgrade to Neutral. Target falls to 20c from 25c.

BLUE SKY ALTERNATIVE INVESTMENTS LIMITED ((BLA)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

Blue Sky has guided to 37% FY18 profit growth and has noted a quarterly gain in assets under management, supporting the fund's FY18 and FY19 AUM targets. Confidence is underpinned by several institutional mandates won in the quarter.

Morgans believes Blue Sky is well positioned for AUM growth supported by its deal pipeline, institutional interest and a strong macro backdrop. Target rises to $14.34 from $11.18 but with the share price already close to this level, Morgans pulls back to Hold.

BEACH ENERGY LIMITED ((BPT)) Downgrade to Neutral from Buy by Citi and Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/2/0

Beach Energy's Sep Q numbers beat Citi on more oil in the mix and higher realised oil prices. Cooper wells have been tied in earlier than expected. The broker has upgraded FY18 forecast earnings by 15.6%.

The market was nevertheless concerned over Origin Energy's ((ORG)) realised gas price for its Lattice business Beach is set to acquire, but the broker sees year one prices as less relevant than later years once Beach normalises for Otway interests.

While the stock price has rallied with the oil price, Citi estimates a long term oil price in excess of US$66/bbl is being assumed. Downgrade to Neutral on valuation. Target rises to 97c from 92c.

Ord Minnett has reviewed its energy and utilities sector coverage, incorporating the latest oil price forecasts and marking to market commodity prices.

The broker increases its target for Beach Energy to $0.87 from $0.82 but downgrades its rating to Lighten from Hold based on valuation.

While the could be positive catalysts as the Lattice Energy transaction is completed the broker believes the stock appears expensive.

FAIRFAX MEDIA LIMITED ((FXJ)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/3/0

Deutsche Bank now incorporates Domain into forecasts as a separate entity. The uplift in corporate costs and the outflows relating to the agent equity model reduce the broker's valuation.

Whilst recognising the growth potential inherent in Domain, Deutsche Bank believes it is now fully factored into the share price.

The broker downgrades to Hold from Buy and reduces the target to $1.10 from $1.15.

INVESTA OFFICE FUND ((IOF)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/1/2

Credit Suisse analysis shows that, on average, net tangible asset backing per security is up by 28% over the past three years across the large-cap A-REITs.

Some 68% of this upside has been driven by cap rate compression. At some point the cycle will turn and reversion to June 2014 cap rates wold mean an average NTA decline of -15%.

Investa Office is considered the most exposed to this reversion. Rating is downgraded to Neutral from Outperform. Target is reduced to $4.58 from $4.67.

ISENTIA GROUP LIMITED ((ISD)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/1

In its fourth successive guidance downgrade, iSentia has reset earnings expectations to $32-36m when Macquarie had $46m. The competitive pressures and structural headwinds facing the company are becoming increasingly apparent, the broker suggests.

At 12.8x forward earnings, iSentia has to provide evidence of a turnaround before Macquarie can justifying buying the stock. Recent price weakness may nevertheless inspire corporate activity. Downgrade to Underperform.

Target falls to 91c from $1.66.

PILBARA MINERALS LIMITED ((PLS)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/1/0

Citi analysts have increased the probability on Pilgangoora expansion to 5mtpa, and this pushes up the price target to 95c from 68c. The rating is downgraded to Neutral/High Risk from Buy/High Risk.

Investors looking for lithium exposure are directed towards Buy rated Orocobre ((ORE)). Citi analysts are "fundamentally bullish" on lithium, but also believe increased supply has the potential to push the market back into surplus in 2018.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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