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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Nov 13 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 November 6 to Friday November 10, 2017
Total Upgrades: 11
Total Downgrades: 12
Net Ratings Breakdown: Buy 41.40%; Hold 43.08%; Sell 15.52%

The strong rally in Australian share prices that started on October 1st has received no support from the local stockbroking research community, other than maybe for miners and energy stocks through increased forecasts. When it comes to price targets and recommendations for individual ASX-listed stocks, however, investors and traders are pretty much left on their own.

The week ending Friday, 10th November 2017, proved no exception. FNArena counted 12 downgrades versus 11 upgrades. Positive news and/or valuation support for stocks like Costa Group, EclipX, Janus Henderson and Magellan Financial was countered by disappointing market updates, but in particular by stretched valuations which are triggering downgrades for companies including Santos (2x), Orica, Xero and, yes, Westpac.

CommBank received both one upgrade to Neutral and one downgrade to Neutral.

Altium, Virgin Australia and Platinum Asset Management all enjoyed target price increases of more than 8%, followed by James Hardie, Downer EDI, Eclipx, Costa Group and Santos which all saw target price increases of at least 5%. Nothing wrong with momentum here, but in most cases it's already in the share price.

The table for negative revisions to target looks a lot more subdued with Sims Metal on top with a -5% reduction, but things get a lot more benign from the second spot onwards.

There is no shortage on positive revisions to profit estimates either, with long suffering Perseus Mining grabbing top spot, followed by EclipX, BT Investment, Virgin Australia, Costa Group, and others. Note the small representation by miners and energy stocks.

On the negative side, we find Janus Henderson, Syrah Resources, Ardent Leisure, National Australia Bank and Orica with noticeable reductions.

AGM season is heating up in Australia and investors can look forward to more results from out-of-season reporters. With a small number of exceptions, it hasn't been great, extending the general feel that also dominated the season in August.

Upgrade

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/7/1

The Q1 update was better than expected and Citi has pushed up its rating to Neutral from Sell. Target is raised to $76.75 from $76.50.

The analysts are now of the view Australia's number one bank looks to be in good shape, with enough capital momentum to absorb any likely penalty.

See also CBA downgrade.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/0

The company will lift its shareholding of African Blue to 90% from 49%. A payment of $68m for the initial 37% share increase will be paid and the remaining 4% is dependent on actual earnings achieved.

Macquarie expects this Moroccan transaction to heighten the chance of an upgrade at the AGM. Costa has previously guided for 10% growth in underlying net profit in FY18.

Macquarie upgrades to Outperform from Neutral. Target is raised to $7.00 from $6.14.

ECLIPX GROUP LIMITED ((ECX)) Upgrade to Buy from Neutral by Citi .B/H/S: 6/0/0

Citi notes the company continues to transform into a diversified financial services business, growing its B2B and B2C platforms.

One lingering concern is that the diversification impresses complexity and reduced visibility. The broker upgrades to Buy from Neutral and increases the target to $4.82 from $4.25.

JB HI-FI LIMITED ((JBH)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 1/5/2

Ord Minnett retains concerns regarding the health of the consumer sector and the negative impact of Amazon. Nonetheless, there are emerging signs that, while consumer sentiment will likely remain subdued, wage growth could improve.

The broker is also more confident that the company has attributes which provide some support that is yet to be fully reflected in the share price. Rating is upgraded to Hold from Lighten. Target is raised to $23.00 from $22.50.

JANUS HENDERSON GROUP PLC. ((JHG)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/1/0

It appears earnings missed expectations in the trading update but Citi analysts are of the view the combination of better flows and the strong performance of equity markets at present offers plenty of compensation.

In addition, targeted merger synergies have been lifted to US$125m (still below Citi's forecast of US$130m) by management and the analysts assume the market will see this as a positive.

Citi sees Janus Henderson offering superior EPS growth vis-a-vis peers. Upgrade to Buy from Neutral. Target price lifts to US$39, which converts to $50.75 for Australian investors.

JAMES HARDIE INDUSTRIES N.V. ((JHX)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/0

Citi analysts have decided to grant James Hardie the benefit of the doubt. The EBIT margin surprised in the face of cost headwinds, but competitors have been reporting solid volume growth, point out the analysts.

If the stars align this year, this company's margin may well surprise to the upside in FY19, suggest the analysts. Rating upgraded to Buy from Neutral. Target price lifts to $23 from $20.10.

Also, Citi reminds investors Fermacell was offered and declined back in 2008. This year the response was "yes", but execution remains key.

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

Morgans upgrades to Add from Hold because of a recent fall in the share price.

The broker expects the company to continue to signup significant new customers for its Talent Community in coming months. No change to forecasts or $1.10 target are made.

MAGELLAN FINANCIAL GROUP LIMITED ((MFG)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/4/0

Funds under management at the end of October were up 8.6%. The strong growth was driven by both positive market movements and net inflows.

The strong market movements were significantly ahead of Credit Suisse assumptions, leading to upgrades of 4% to funds under management.

Rating is upgraded to Outperform from Neutral. Target is raised to $28.25 from $27.00.

PLATINUM ASSET MANAGEMENT LIMITED ((PTM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/1/3

Credit Suisse observes growth in funds under management appears to be particularly strong, with unit prices for the international fund indicating a rise of 6.9% in October.

Both this fund and the Asia fund, which rose 8.9%, are ahead of  the broker's normalised growth assumptions.

While the broker considers the trading multiple slightly stretched, the rebound in fund performance could lead to higher net flows and performance fees. Rating is upgraded to Neutral from Underperform. Target rises to $7.00 from $5.90.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 6/1/1

Ord Minnett retains concerns regarding the health of the consumer sector and the negative impact of Amazon. Nonetheless, there are emerging signs that, while consumer sentiment will likely remain subdued, wage growth could improve.

The broker is also more confident that the company has attributes which provide some support that is yet to be fully reflected in the share price. Rating is upgraded to Hold from Lighten. Target is unchanged at $8.

VIRGIN AUSTRALIA HOLDINGS LIMITED ((VAH)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/0/2

Credit Suisse observes capacity discipline appears to be resuming in the domestic airline market. The broker expects a rational approach to continue until the Virgin Australia balance sheet is solid.

No decision on privatisation has been reached. The broker ascribes a two third probability to a privatisation outcome and upgrades to Outperform from Neutral. Target is raised to $0.26 from $0.20.

Downgrade

ALTIUM LIMITED ((ALU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/2/0

Credit Suisse has downgraded to Neutral from Outperform while bumping up its price target to $12 from $9.50. The analysts explain the downgrade has been inspired by the incredibly strong share price rally in recent weeks.

The analysts believe investors are already pricing in some modest growth contribution from the Dassault partnership.

Price target has been positively impacted by weaker AUD, lower discount rate and modest increases to long-term earnings, explain the analysts. They struggle to justify the current premium.

COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Downgrade to Hold from Add by Morgans .B/H/S: 0/7/1

CBA's result showed an expansion in net interest margin despite the drag from the levy. Morgans has nevertheless reduced forecast earnings due to subdued loan growth.

Capital stood at 10.1% at the end of the period. The sale of the life business will provide a boost but as the bank faces a possibly hefty fine post the Austrac investigation, "a cynic might suggest", to use the broker's words, the bank is deliberately slowing loan growth in order to reach APRA's 10.5% requirement.

$80 target retained, downgrade to Hold.

See also CBA upgrade.

COCHLEAR LIMITED ((COH)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/3

Citi analysts agree with the market's view there is ongoing upside bias to this year's profit outlook, but the share price is simply too high.

Hence the downgrade to Sell from Neutral, justified as "due to sky high valuation". Citi highlights there are some risks still, and these are currently not accounted for in the share price rally.

Price target lifts to $160 from $155.

INGHAMS GROUP LIMITED ((ING)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0

Citi is now anticipating weaker poultry volume growth over the next 12 months supported by the view that red meat seems poised to take back market share from poultry given lower prices for red meat.

On that basis earnings estimates have been pared back by -1-2% and the rating has been pulled back to Neutral from Buy. Target price drops -10c to $3.65.

The company is also facing higher feed costs but Citi points out due to hedging the impact won't be felt until nine months into the future.

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

Following Mac Atlas' solid share price run, Morgans now pulls back to Hold, while noting this week's APRR bond issue suggests the fund will be able to continue to access cheaper funding through to 2019.

The next catalyst will be the French CPI result, which determines APRR toll increases. Target rises to $6.27 from $6.13.

MURRAY RIVER ORGANICS GROUP LIMITED ((MRG)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

The difficult FY17 season has taken its toll on Murray River. Following a stocktake, the company will write-down -$4.3m of the value of its inventory. Morgans understands high-priced clusters suffered quality issues due to the weather and other factors.

The result is a material reduction in the broker's forecast earnings and a more conservative view going forward. Downgrade to Hold. On the positive side, an ex-Costa Group COO will take over as CEO. Target rises to 45c from 43c.

ORICA LIMITED ((ORI)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/5/3

"Running hard to stand still" and "more downside risk in the near term" easily explain why Citi has elected to downgrade to Sell from Neutral. The stock is trading at a 10% premium versus the broader market as investors have been anticipating a recovery in profits, but Citi is not on board.

Forecasts have been cut by -13.5% in FY18 and -6% in FY19 after what is labeled a disappointing FY17 report. Citi thinks ammonium nitrate (AN) will be pushed into surplus in Western Australia from the moment the Burrup AN plant will ramp up.

Citi sees AN not rebalancing until FY20. Incitec Pivot ((IPL)) is preferred. Target drops to $17.

SOUTH32 LIMITED ((S32)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 2/5/1

South32 has highlighted additional cost inflation going forward from rising input prices, commodity price-linked contracts and the A$. Deutsche Bank believes costs could rise by as much as 20% in FY18, cutting earnings by -15%.

Meanwhile, the market is valuing the stock based on spot commodity prices and A$ at current levels through to end-FY19, yet the broker believes all of alumina, manganese and coal are expensive based on current cost curves.

Deutsche has thus downgraded to Sell. Target falls to $2.80 from $2.85.

SANTOS LIMITED ((STO)) Downgrade to Sell from Neutral by UBS and Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/2

UBS observes 2018 production guidance is marginally below 2017 while capital expenditure guidance is up 17% at the mid point. The company is expecting a broadly flat output from its five key assets.

While the stock has been an effective way to gain exposure to an oil price recovery the broker believes it is now factoring in an oil price that is 10% above spot and downgrades to Sell from Neutral. Target is raised to $4.05 from $3.85.

Following the strong share price rally, Citi has pulled back its rating to Neutral from Buy. The analysts do highlight Santos remains their favourite exposure in the sector.

The analysts reiterate their view that on implied long term oil price assumptions, the sector in general looks "expensive".

Citi see potential blue-sky value of $6.47 from de-risking growth and delivering further cost-out, but also suggests this is likely to be a multi-year process. In the near term, the analysts continue to see risk to the price of crude oil. Target lifts to $4.71 from $4.30.

Interestingly, the analysts have now scrapped DPS estimates for both 2017 and 2018.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/5/0

Credit Suisse liked the balance sheet growth in FY17 but did not like the negative tone of the FY18 guidance statements, particularly around revenue.

Following the upgrade of the stock mid 2017 to Outperform as a tactical call on the leverage to Australian mortgage re-pricing, the broker now downgrades to Neutral as the benefits have become embedded and there are emerging margin headwinds.

Target is reduced to $33.50 from $34.00.

XERO LIMITED ((XRO)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/2/1

The company's first half results were in line with Macquarie's forecasts. Xero has also announced its intention to de-list from the NZX. The company intends to focus its liquidity on one market, and the broker observes this should make trading the shares easier.

Following a period of strong price appreciation the broker downgrades to Underperform from Neutral. An aggressive set of valuation assumptions does not generate the valuation that justifies a positive stance, Macquarie believes.

Target is increased to NZ$30 from NZ$23.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 COMMONWEALTH BANK OF AUSTRALIA Neutral Sell Citi
2 COSTA GROUP HOLDINGS LIMITED Buy Neutral Macquarie
3 ECLIPX GROUP LIMITED Buy Neutral Citi
4 JAMES HARDIE INDUSTRIES N.V. Buy Neutral Citi
5 JANUS HENDERSON GROUP PLC. Buy Neutral Citi
6 JB HI-FI LIMITED Neutral Sell Ord Minnett
7 LIVEHIRE LIMITED Buy Neutral Morgans
8 MAGELLAN FINANCIAL GROUP LIMITED Buy Neutral Credit Suisse
9 PLATINUM ASSET MANAGEMENT LIMITED Neutral Sell Credit Suisse
10 SUPER RETAIL GROUP LIMITED Neutral Sell Ord Minnett
11 VIRGIN AUSTRALIA HOLDINGS LIMITED Buy Neutral Credit Suisse
Downgrade
12 ALTIUM LIMITED Neutral Buy Credit Suisse
13 COCHLEAR LIMITED Sell Neutral Citi
14 COMMONWEALTH BANK OF AUSTRALIA Neutral Buy Morgans
15 INGHAMS GROUP LIMITED Neutral Buy Citi
16 MACQUARIE ATLAS ROADS GROUP Neutral Buy Morgans
17 MURRAY RIVER ORGANICS GROUP LIMITED Neutral Buy Morgans
18 ORICA LIMITED Sell Neutral Citi
19 SANTOS LIMITED Neutral Buy Citi
20 SANTOS LIMITED Sell Neutral UBS
21 SOUTH32 LIMITED Sell Neutral Deutsche Bank
22 WESTPAC BANKING CORPORATION Neutral Buy Credit Suisse
23 XERO LIMITED Sell Neutral Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CGC COSTA GROUP HOLDINGS LIMITED 67.0% 33.0% 34.0% 3
2 DOW DOWNER EDI LIMITED 50.0% 25.0% 25.0% 5
3 PTM PLATINUM ASSET MANAGEMENT LIMITED -75.0% -100.0% 25.0% 4
4 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED -38.0% -63.0% 25.0% 4
5 ECX ECLIPX GROUP LIMITED 100.0% 83.0% 17.0% 6
6 MFG MAGELLAN FINANCIAL GROUP LIMITED 33.0% 17.0% 16.0% 6
7 OZL OZ MINERALS LIMITED 38.0% 25.0% 13.0% 8
8 JHX JAMES HARDIE INDUSTRIES N.V. 67.0% 57.0% 10.0% 6
9 SUL SUPER RETAIL GROUP LIMITED 63.0% 56.0% 7.0% 8
10 JBH JB HI-FI LIMITED -13.0% -19.0% 6.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 ALU ALTIUM LIMITED 33.0% 67.0% -34.0% 3
2 STO SANTOS LIMITED 25.0% 50.0% -25.0% 8
3 MQA MACQUARIE ATLAS ROADS GROUP 20.0% 40.0% -20.0% 5
4 COH COCHLEAR LIMITED -50.0% -33.0% -17.0% 6
5 EPW ERM POWER LIMITED 33.0% 50.0% -17.0% 3
6 ING INGHAMS GROUP LIMITED 67.0% 83.0% -16.0% 6
7 ORI ORICA LIMITED -38.0% -25.0% -13.0% 8
8 SGM SIMS METAL MANAGEMENT LIMITED 20.0% 33.0% -13.0% 5
9 WBC WESTPAC BANKING CORPORATION 38.0% 50.0% -12.0% 8
10 S32 SOUTH32 LIMITED 13.0% 25.0% -12.0% 8

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ALU ALTIUM LIMITED 10.200 9.367 8.89% 3
2 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.188 0.173 8.67% 4
3 PTM PLATINUM ASSET MANAGEMENT LIMITED 5.090 4.713 8.00% 4
4 JHX JAMES HARDIE INDUSTRIES N.V. 21.780 20.396 6.79% 6
5 DOW DOWNER EDI LIMITED 7.050 6.680 5.54% 5
6 ECX ECLIPX GROUP LIMITED 4.645 4.417 5.16% 6
7 CGC COSTA GROUP HOLDINGS LIMITED 5.903 5.617 5.09% 3
8 STO SANTOS LIMITED 4.461 4.248 5.01% 8
9 ORI ORICA LIMITED 18.083 17.463 3.55% 8
10 MFG MAGELLAN FINANCIAL GROUP LIMITED 27.893 27.155 2.72% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SGM SIMS METAL MANAGEMENT LIMITED 14.060 14.883 -5.53% 5
2 IPL INCITEC PIVOT LIMITED 3.700 3.738 -1.02% 7
3 ING INGHAMS GROUP LIMITED 3.775 3.792 -0.45% 6
4 WBC WESTPAC BANKING CORPORATION 33.700 33.800 -0.30% 8
5 S32 SOUTH32 LIMITED 3.179 3.185 -0.19% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 PRU PERSEUS MINING LIMITED 1.362 0.102 1235.29% 5
2 ECX ECLIPX GROUP LIMITED 27.583 25.017 10.26% 6
3 BTT BT INVESTMENT MANAGEMENT LIMITED 60.383 55.900 8.02% 6
4 VAH VIRGIN AUSTRALIA HOLDINGS LIMITED 0.901 0.866 4.04% 4
5 CGC COSTA GROUP HOLDINGS LIMITED 22.667 21.933 3.35% 3
6 PTM PLATINUM ASSET MANAGEMENT LIMITED 30.250 29.425 2.80% 4
7 STO SANTOS LIMITED 15.374 14.981 2.62% 8
8 WBC WESTPAC BANKING CORPORATION 243.843 238.450 2.26% 8
9 MFG MAGELLAN FINANCIAL GROUP LIMITED 117.450 114.917 2.20% 6
10 OZL OZ MINERALS LIMITED 55.873 54.844 1.88% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 JHG JANUS HENDERSON GROUP PLC. 284.457 318.328 -10.64% 5
2 SYR SYRAH RESOURCES LIMITED -10.344 -9.584 -7.93% 5
3 AAD ARDENT LEISURE GROUP 3.137 3.380 -7.19% 7
4 NAB NATIONAL AUSTRALIA BANK LIMITED 229.363 240.038 -4.45% 8
5 ORI ORICA LIMITED 101.770 105.913 -3.91% 8
6 AQG ALACER GOLD CORP 35.286 36.360 -2.95% 5
7 S32 SOUTH32 LIMITED 24.044 24.699 -2.65% 8
8 KAR KAROON GAS AUSTRALIA LIMITED -7.100 -7.000 -1.43% 3
9 CYB CYBG PLC 31.706 32.060 -1.10% 5
10 TME TRADE ME GROUP LIMITED 23.388 23.648 -1.10% 5

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CHARTS

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