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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Dec 04 2017

By Greg Peel, Acting 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 27 to Friday December 1, 2017
Total Upgrades: 7
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.34%; Hold 42.54%; Sell 16.12%

Last week saw the ASX200 bouncing around the 6000 mark, failing to make a meaningful breakthrough. Stock analyst ratings changes were again evenly balanced over the week, with seven upgrades meeting eight downgrades. Of the upgrades, six were to Buy and of the downgrades, three were to Sell. At 42.5%, Hold ratings continue to edge out Buy ratings.

There was no overall theme to the week other than to note the bulk of the upgrades were to stocks that have underperformed of late and now look better value, according to analysts, and the downgrades similarly were to stocks that have outperformed and now look well priced or overvalued.

Coca-Cola Amatil, Motorcycle Holdings, Orica and the two IVF clinics, Monash and Virtus have all de-rated beyond what analysts consider reasonable. Aristocrat Leisure and Treasury Wines have run too hard. Ord Minnett believes the market has become too overweight the miners and expects a rotation in early 2018, hence downgrades to South32 and Western Areas. In the vehicle leasing/salary packaging space, Citi believes Smartgroup and McMillan Shakespeare are now stretched and recommends switching into EclipX ((ECX)) and SG Fleet ((SGF)).

Last week's target price moves were led by a 11% increase for Automotive Holdings ((AHG)) following the divestment of its cold logistics business. Domain ((DHG)) rose 8% when Morgan Stanley bucked the trend and initiated with an Overweight rating (the three other initiations have Sell ratings), while IOOF Holdings ((IFL)) rose 5% on the acquisition of ANZ's wealth management business.

On the downside, target reductions followed weak trading updates from Webjet ((WEB)), down -9%, and Class ((CL1)), down -6%, while poor box office sees Village Roadshow ((VRL)) down -4%.

A positive update from Aristocrat was met with a 30% increase in consensus earnings forecast while Auto Holdings aforementioned divestment was worth 9%.

Western Areas copped a -37% downgrade but such moves are not unusual among the miners, while Webjet's woes were worth -16%.

Upgrade

COCA-COLA AMATIL LIMITED ((CCL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/4/1

Citi's upgrade to Buy, with a reduced price target of $8.80 (from $9.10) is supported by two key pillars. The shares look cheap, with the analysts observing a -12% discount versus Coca-Cola European partners, described as Amatil's "nearest rival".

The second pillar is an anticipation that revenues in Australia will stabilise in H1 and this should act as a catalyst for the stock to recover. Citi thinks 5% EPS growth is possible beyond FY19.

DEXUS PROPERTY GROUP ((DXS)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/2

Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a "once in a cycle" opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88.

The broker upgrades to Accumulate from Hold, believing Dexus is best positioned in terms of opportunity because of a favourable cash flow outlook and strong valuation support. Target is raised to $10.50 from $9.50.

IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/0

The acquisition of the ANZ ((ANZ)) wealth business is a landmark deal in Morgan Stanley's view, with scope for substantial upside to targeted synergies. The deal takes out a major competitor and delivers substantial scale.

The broker notes IOOF and AMP ((AMP)) appear to be the only major players committed to advice, as banks are retreating. In the long run the broker considers this an attractive situation.

Rating is upgraded to Overweight from Equal-weight. Target is raised to $13.00 from $9.90. Industry view is In-Line.

MOTORCYCLE HOLDINGS LIMITED ((MTO)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

FY17 acquisitions, and the maiden contribution from Cassons, should mean the company is positioned to achieve growth in the first half despite tough industry conditions, Morgans asserts.

The company has pointed to weak conditions for new bike sales, down -5.4% in the year-to-date versus used bike volumes that are up 14.1%.

Morgans suggests that, given the contributions from the three acquisitions in the second half of FY17, the actual organic volume growth would have been lower.

Rating is upgraded to Add from Hold. Target is raised to $5.57 from $5.41.

MONASH IVF GROUP LIMITED ((MVF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

Morgans observes the share price has been punished after the company downgraded first half expectations. Transition to a new CEO, the loss of a key doctor and competitive pressures are the main issues.

However, underlying IVF cycle numbers are returning to long-term growth rates, and despite downgrading FY18 net profit forecasts by -7.2%, the broker is encouraged by broader market developments.

Morgans upgrades to Add from Hold. Target is reduced to $1.52 from $1.58.

ORICA LIMITED ((ORI)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/6/2

Disappointing FY18 guidance has triggered a material de-rating of the stock, Morgan Stanley observes. Since November 6 the share price has declined -18% and this is set against the backdrop of an -8% downgrade to Morgan Stanley's FY18 net profit forecasts.

Rating is upgraded to Equal-weight from Underweight. While becoming more positive, the broker concedes its move to upgrade may prove premature and acknowledges scope for things to get worse before they can get better.

Target is $16.50. Industry view is Cautious.

VIRTUS HEALTH LIMITED ((VRT)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

Morgans suspects the broader IVF market is stabilising, as recovery in NSW and Victoria offsets weakness in Queensland.

The weakness in the Virtus Health share price is considered an opportunity, seemingly affected by the unexpected downgrade by Monash IVF ((MVF)). The broker notes that the Monash issues are independent of the broader market.

Morgans upgrades to Add from Hold. Target is $5.46.

Downgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 5/2/0

FY17 net profit was ahead of board minutes forecasts. The company has also announced the acquisition of game developer Big Fish. Ord Minnett observes the company has significantly increased its digital exposure, with further opportunities available.

The broker considers the risk/reward attractive but, as there's been a strong run up in the share price since September, downgrades to Accumulate from Buy. Target is reduced to $24.20 from $24.60.

INVESTA OFFICE FUND ((IOF)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/2/2

Sydney and Melbourne office assets have been re-priced considerably since June, Ord Minnett observes. A-REITs have a "once in a cycle" opportunity to trade the asset class, the broker asserts, as asset values exceed replacement cost at premiums not seen since 1987-88.

Yet, the broker downgrades Investa to Hold from Accumulate, expecting lower cash flow and a higher level of refurbishment expenditure. Target is reduced to $4.85 from $5.00.

MCMILLAN SHAKESPEARE LIMITED ((MMS)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/4/0

Citi has updated on the Australian automotive fleet industry recommending investors switch out of Smartgroup and McMillan Shakespeare and into EclipX (preferred) and SG Fleet.

The analysts anticipate ongoing consolidation of the sector with both SG Fleet and EclipX expected to lead the move. To support the shift in preference, and in reference to elevated valuations, both Smartgroup and McMillan Shakespeare have received downgrades to Neutral. Target $16.87.

SOUTH32 LIMITED ((S32)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/7/1

Ord Minnett believes the local market is now overweight the mining sector and share prices may be vulnerable to rotation heading into the next calendar year. While not being outright negative, the broker recommends reduced exposure.

South32 is downgraded to Hold from Buy following recent gains in the share price.  $3.40 target maintained.

SMARTGROUP CORPORATION LTD ((SIQ)) Downgrade to Neutral from Buy by Citi .B/H/S: 4/2/0

Citi has updated on the Australian automotive fleet industry recommending investors switch out of Smartgroup and McMillan Shakespeare and into EclipX (preferred) and SG Fleet.

The analysts anticipate ongoing consolidation of the sector with both SG Fleet and EclipX expected to lead the move. To support the shift in preference, and in reference to elevated valuations, both Smartgroup and McMillan Shakespeare have received downgrades to Neutral. Target $10.11.

TREASURY WINE ESTATES LIMITED ((TWE)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/2/3

Credit Suisse believes the company affords above-market growth for investors but this is priced in for the time being and downgrades to Underperform from Neutral.

The recent share price rally has pushed the company's price/earnings ratio and operating earnings ratio ahead of peer comparables, in the broker's calculation. Target is $14.15.

VILLAGE ROADSHOW LIMITED ((VRL)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/2

A depressed industry box office and underperforming titles have resulted in the first four months of FY18 being significantly weaker than the previous corresponding period.

In theme parks, although the critical summer trading period is yet to commence, management expects a substantial improvement in segment earnings. Dividends are expected to return in FY18.

Macquarie observes downside risk to earnings and limited near-term catalysts for a re-rating and downgrades to Underperform from Neutral. Target is reduced to $3.50 from $4.10.

WESTERN AREAS NL ((WSA)) Downgrade to Sell from Hold by Ord Minnett .B/H/S: 1/1/5

Ord Minnett believes the local market is now overweight the mining sector and share prices may be vulnerable to rotation heading into the next calendar year. While not being outright negative, the broker recommends reduced exposure.

Western Areas  is downgraded to Sell from Hold. Target is $2.50.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 COCA-COLA AMATIL LIMITED Buy Neutral Citi
2 DEXUS PROPERTY GROUP Buy Neutral Ord Minnett
3 IOOF HOLDINGS LIMITED Buy Neutral Morgan Stanley
4 MONASH IVF GROUP LIMITED Buy Neutral Morgans
5 MOTORCYCLE HOLDINGS LIMITED Buy Neutral Morgans
6 ORICA LIMITED Neutral Sell Morgan Stanley
7 VIRTUS HEALTH LIMITED Buy Neutral Morgans
Downgrade
8 ARISTOCRAT LEISURE LIMITED Buy Buy Ord Minnett
9 INVESTA OFFICE FUND Neutral Buy Ord Minnett
10 MCMILLAN SHAKESPEARE LIMITED Neutral Buy Citi
11 SMARTGROUP CORPORATION LTD Neutral Buy Citi
12 SOUTH32 LIMITED Neutral Buy Ord Minnett
13 TREASURY WINE ESTATES LIMITED Sell Neutral Credit Suisse
14 VILLAGE ROADSHOW LIMITED Sell Neutral Macquarie
15 WESTERN AREAS NL Sell Neutral Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED -50.0% -100.0% 50.0% 4
2 VRT VIRTUS HEALTH LIMITED 67.0% 33.0% 34.0% 3
3 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 79.0% 50.0% 29.0% 7
4 IFL IOOF HOLDINGS LIMITED 40.0% 20.0% 20.0% 5
5 ORI ORICA LIMITED -25.0% -38.0% 13.0% 8
6 CCL COCA-COLA AMATIL LIMITED 25.0% 13.0% 12.0% 8
7 CHC CHARTER HALL GROUP 42.0% 33.0% 9.0% 6
8 AMC AMCOR LIMITED 31.0% 25.0% 6.0% 8
9 PGH PACT GROUP HOLDINGS LTD 20.0% 17.0% 3.0% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CL1 CLASS LIMITED 67.0% 100.0% -33.0% 3
2 VRL VILLAGE ROADSHOW LIMITED -50.0% -25.0% -25.0% 4
3 WEB WEBJET LIMITED 20.0% 40.0% -20.0% 5
4 SIQ SMARTGROUP CORPORATION LTD 58.0% 75.0% -17.0% 6
5 TWE TREASURY WINE ESTATES LIMITED -21.0% -7.0% -14.0% 7
6 WSA WESTERN AREAS NL -57.0% -43.0% -14.0% 7
7 MTR MANTRA GROUP LIMITED 13.0% 25.0% -12.0% 8
8 ALL ARISTOCRAT LEISURE LIMITED 64.0% 71.0% -7.0% 7
9 COH COCHLEAR LIMITED -57.0% -50.0% -7.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 3.891 3.506 10.98% 7
2 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 3.663 3.383 8.28% 4
3 IFL IOOF HOLDINGS LIMITED 12.140 11.520 5.38% 5
4 MTR MANTRA GROUP LIMITED 3.736 3.641 2.61% 8
5 ALL ARISTOCRAT LEISURE LIMITED 25.400 24.850 2.21% 7
6 COH COCHLEAR LIMITED 146.257 143.800 1.71% 7
7 CHC CHARTER HALL GROUP 5.893 5.835 0.99% 6
8 AMC AMCOR LIMITED 16.229 16.135 0.58% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 WEB WEBJET LIMITED 11.930 13.080 -8.79% 5
2 CL1 CLASS LIMITED 3.333 3.550 -6.11% 3
3 VRL VILLAGE ROADSHOW LIMITED 3.690 3.840 -3.91% 4
4 CCL COCA-COLA AMATIL LIMITED 8.464 8.738 -3.14% 8
5 SIQ SMARTGROUP CORPORATION LTD 9.268 9.275 -0.08% 6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ALL ARISTOCRAT LEISURE LIMITED 101.160 77.624 30.32% 7
2 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 29.110 26.739 8.87% 7
3 OZL OZ MINERALS LIMITED 60.381 56.709 6.48% 8
4 BSL BLUESCOPE STEEL LIMITED 99.680 95.102 4.81% 5
5 A2M THE A2 MILK COMPANY LIMITED 21.850 21.116 3.48% 5
6 BKW BRICKWORKS LIMITED 110.475 107.300 2.96% 4
7 ORG ORIGIN ENERGY LIMITED 52.949 51.933 1.96% 7
8 NVT NAVITAS LIMITED 21.323 20.953 1.77% 6
9 CCL COCA-COLA AMATIL LIMITED 55.350 54.738 1.12% 8
10 TTS TATTS GROUP LIMITED 17.167 16.980 1.10% 4

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WSA WESTERN AREAS NL 3.958 6.298 -37.15% 7
2 WEB WEBJET LIMITED 43.560 51.722 -15.78% 5
3 NXT NEXTDC LIMITED 3.647 3.905 -6.61% 7
4 CL1 CLASS LIMITED 7.833 8.333 -6.00% 3
5 VRL VILLAGE ROADSHOW LIMITED 17.775 18.500 -3.92% 4
6 DOW DOWNER EDI LIMITED 41.134 42.078 -2.24% 5
7 FXJ FAIRFAX MEDIA LIMITED 5.495 5.578 -1.49% 7
8 GNC GRAINCORP LIMITED 40.544 41.144 -1.46% 5
9 MIN MINERAL RESOURCES LIMITED 131.400 133.333 -1.45% 3
10 ALQ ALS LIMITED 26.345 26.678 -1.25% 6

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CHARTS

AHG ALL AMP ANZ CCL CL1 DHG DXS ECX IFL IOF MMS MTO MVF ORI S32 SGF SIQ TWE VRL VRT WEB WSA