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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Dec 18 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 December 11 to Friday December 15, 2017
Total Upgrades: 11
Total Downgrades: 9
Net Ratings Breakdown: Buy 41.69%; Hold 41.82%; Sell 16.49%

Here we are trying to break out to new highs for the ASX200, with 6000 proving a tough nut to crack, yet broker upgrades still exceeded downgrades last week. It appears there's not too much overvaluation apparent at these levels, as far as brokers are concerned. Indeed, of last week's 9 downgrades, four related to takeover bids/mergers. All of AWE, Tabcorp, Tox Free Solutions and Westfield Corp saw downgrades to either Hold or Sell because their share prices have jumped up to bid levels.

Of the 11 upgrades, seven were for miners. It's that time of the quarter when resource sector analysts reset their commodity price expectations and this December consensus is for improving prices in 2018, flowing through to miner earnings. However it's not a unanimous view, with nickel miner Independence Group receiving both an upgrade and a downgrade. Caltax saw a similar response following the ACCC's decision on the BP-Woolies deal, while conflicting responses followed profit warnings last week, with Retail Food Group enjoying an upgrade but Asaleo Care a downgrade.

In last week's target price moves, Cleanaway Waste Management won the week with 9% as brokers applauded the company's takeover bid for Tox Free. Whitehaven enjoyed a 6% gain after UBS upgraded its target by 25% on higher coal price assumptions. Metcash also saw a 6% gain following its earnings release and expectations of capital management.

On the downside, Seven West Media's consensus target fell -5% when Citi initiated coverage with a Sell rating, while HT&E also lost -5% following an update.

The table of biggest earnings forecast changes last week is dominated by miners, up and down, given small moves in commodity price forecasts can translate through to large moves in earnings expectations.

Upgrade

ALUMINA LIMITED ((AWC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/4/1

Morgan Stanley upgrades to Equal-weight from Underweight as the company benefits from Chinese capacity reductions that drive firmer alumina prices. Alumina price forecasts are increased by 12% for both 2018 and 2019.

Target is raised to $2.20 from $2.10. Attractive industry view retained.

CLEAN TEQ HOLDINGS LIMITED ((CLQ)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/0/0

Deutsche Bank updates its mining and grade profile to aline with the latest technical document for the Sunrise project. The company has released the document in anticipation of listing on the Toronto Stock Exchange.

The stock is now trading at a discount to the broker's risk-weighted target of $1.60 and the rating is upgraded to Buy from Hold.

The company plans to mine at higher rates during the early stages of Sunrise to capture higher cobalt credits. Deutsche Bank updates assumptions to allow for a higher strip ratio during the first seven years.

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/1

The ACCC intends to oppose the proposed acquisition by BP Australia of the Woolworths ((WOW)) retail service station network. The ACCC argues the acquisition would lessen competition in retail fuel. UBS believes the decision is largely positive for Caltex.

Caltex has previously estimated the impact of losing the Woolworths supply agreement to be around -$150m. However, cost savings previously assumed from the loss of the supply contract may not be realised if Caltex retains the network.

UBS increases valuation to reflect the increasing possibility that Caltex retains a supply agreement and upgrades to Buy from Neutral. Target is raised to $39.10 from $35.00.

See also CTX downgrade.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/0

Cleanaway has made a cash bid for Tox Free Solutions  ((TOX)) at $3.425, which amounts to a 28% premium. UBS had considered Tox' assets to be undervalued and an acquisition would diversify Cleanaway's earnings base and provide significant synergies.

UBS also considers consensus earnings forecasts for Cleanaway to be too low. The broker has not yet factored a successful takeover into forecasts, but has added a 50% chance to its valuation, increasing its target to $1.64 from $1.38, sufficient for an upgrade to Buy.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/1

As part of a broader update on commodities' outlook for 2018, UBS has upgraded Fortescue to Buy from Neutral. The price target gains 1% to $5.30 but the broker's Net Present Value (NPV) dives by -17% to $5.30.

The upgrade has been inspired by "value", explain the analysts. UBS is very much Overweight the sector, attracted by higher-for-longer elevated price levels and prospects of plenty of excess cash, much of which should find its way into shareholders' pockets.

INDEPENDENCE GROUP NL ((IGO)) Upgrade to Buy from Sell by Citi .B/H/S: 1/4/1

Citi analysts have implemented a double step upgrade, to Buy from Sell, on a combination of supportive in-house view on base metals in 2018 and the company update which has Nova ramping up to full production and a mill expansion adding further value.

The analysts also mention the recent share price weakness. Price target lifts to $4.50 from $4.20. Citi sees further value accretion from ongoing mining efficiencies.

DPS estimates have been significantly upgraded to 11c per annum for the three years ahead.

See also IGO downgrade.

METCASH LIMITED ((MTS)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/3/1

UBS is now increasingly confident in the company's ability to maintain its operating earnings in food & grocery despite the structural headwinds.

Moreover, the broker has been surprised by the ability to bank cost reductions to date without the need to reinvest in price any further.

With a strong balance sheet and cash generation the broker envisages scope for capital management of up to $150m.

Rating is upgraded to Neutral from Sell. Target is raised to $3.10 from $1.90.

OZ MINERALS LIMITED ((OZL)) Upgrade to Overweight from Underweight by Morgan Stanley .B/H/S: 5/3/0

Morgan Stanley upgrades to Overweight from Underweight. The broker increases copper price assumptions for the near and longer term and includes more near-term depreciation at Prominent Hill to reflect the drawdown of ore inventory.

Target is raised to $9.00 from $7.80. Industry view: Attractive.

RETAIL FOOD GROUP LIMITED ((RFG)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/1/0

The company is conducting a business-wide review to better ensure a sustainable future. UBS reduces long-term growth forecasts to account for the risk of increased franchisee support.

UBS reduces its nominal terminal growth rate estimate for RFG to 1% from 3%.

However, given weakness in the share price the broker upgrades to Neutral from Sell. Target is reduced to $3.15 from $4.55.

SOUTH32 LIMITED ((S32)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 2/5/1

Morgan Stanley upgrades to Overweight from Equal-weight. Commodity price revisions, particularly metallurgical coal, aluminium and manganese, have affected FY18 and FY19 earnings estimates by -6% and 24% respectively.

The broker reduces the buyback value for the first half and carries the value into FY19, in line with the slower rate of take-up evident through the first half.

Target is raised to $3.75 from $3.40. Industry view is Attractive.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/2

As part of a broader update on commodities' outlook for 2018, UBS has upgraded Whitehaven Coal to Buy from Neutral. The price target gains 25% to $4.50.

The upgrade has been inspired by "value", explain the analysts. UBS is very much Overweight the sector, attracted by higher-for-longer elevated price levels and prospects of plenty of excess cash, much of which should find its way into shareholders' pockets.

Whitehaven will be swimming in cash next year predict the analysts.

Downgrade

AGL ENERGY LIMITED ((AGL)) Downgrade to Neutral from Buy by Citi .B/H/S: 5/2/0

It appears Citi analysts were not that impressed with AGL's Strategy Day presentation. They note higher growth plans come with higher capex attached and there is not much clarity about how exactly earnings are going to benefit.

Citi has thus decided to adopt a more cautious view, hence the downgrade to Neutral from Buy. The analysts would like to see a more attractive entry point, given uncertainty about the next growth phase, unless there is another spike in wholesale electricity prices.

Target price declines to $26.31 from $26.88. Earnings estimates have been slightly reduced.

ASALEO CARE LIMITED ((AHY)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/1

The company has downgraded FY17 underlying operating earnings guidance, expecting a -4.7% decline at the mid point of the range.

Citi notes the company is losing share in feminine hygiene even though other categories are performing strongly. The broker downgrades to Sell from Neutral. Target is reduced to $1.35 from $1.60.

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

Mineral Resources ((MIN)) has confirmed an all-scrip offer for AWE, with AWE shareholders receiving one MIN share for every 22.325 shares held.

This values AWE at $0.80 a share as of Friday's close and compares with the bid from China Energy Reserve and Chemical at $0.73 per share, cash.

So close to Christmas, Citi is not sure that investors awaiting a higher offer will be rewarded by Santa and downgrades to Sell/High Risk from Neutral/High Risk rating. Target is $0.72.

CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 4/2/1

The ACCC intends to oppose the proposed acquisition of the Woolworths ((WOW)) service station network by BP. BP and Woolworths are currently considering options in the light of the decision.

Caltex has guided to a -$150m annualised earnings headwind from the resulting sale of the fuel network. If the transaction were not to be completed, Deutsche Bank estimates this would represent a 9% and 8% increase to 2018 and 2019 net profit estimates respectively.

Deutsche Bank makes no changes to earnings estimates at this stage and, having already factored in delays to its price target, downgrades to Hold from Buy. Target is $36.15.

See also CTX upgrade.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/4/1

Morgan Stanley downgrades to Equal-weight from Overweight. The target is increased to $4.15 from $3.75 to reflect higher nickel price forecasts.

As the equity is trading in line with the new target and offers only limited upside the broker has downgraded its rating. Attractive sector view retained.

See also IGO upgrade.

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

UBS finds it hard to ignore the stock's 1-year forward PE of 30.9x, which represents a 70% premium against the Small Industrials index. This is well above the 7-year historical premium of 59%.

While the trend of high PE stocks as a key contributor to index strength has eased over the year, the broker notes that Invocare's share price has only fallen -3% since its all-time highs.

Rating is downgraded to Sell from Neutral. Target is raised to $16.10 from $14.70.

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

Shareholders have approved the scheme merger with Tatts ((TTS)). Credit Suisse has downgraded to Neutral from Outperform until there is more clarity regarding the company's ability to surpass $0.26 per share in dividends by FY20.

Credit Suisse expects the wagering industry structure is likely to improve further, with the advent of a possible point of consumption tax in Victoria from FY19. Target is raised to $5.20 from $4.80.

TOX FREE SOLUTIONS LIMITED ((TOX)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/4/0

UBS downgrades to Neutral from Buy as the stock is trading largely in line with valuation. Target is raised to $3.50 from $2.85.

The broker believes Cleanaway's bid goes a long way to closing the valuation gap and peers may not be able to extract the same synergies, or be too heavily geared, to make a counter bid.

WESTFIELD CORPORATION ((WFD)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/1/1

Ord Minnett downgrades to Hold from Accumulate following further analysis of the takeover bid by Unibail-Rodamco. Valuation and target stands at $10.60, but the broker acknowledges there is limited upside from current levels in the absence of a higher bid.

Westfield shareholders will receive a 90% stake in OneMarket, formerly known as Westfield Retail Solutions and Westfield Labs, which will be spun out to security holders post the deal being implemented.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 ALUMINA LIMITED Neutral Sell Morgan Stanley
2 CALTEX AUSTRALIA LIMITED Buy Neutral UBS
3 CLEAN TEQ HOLDINGS LIMITED Buy Neutral Deutsche Bank
4 CLEANAWAY WASTE MANAGEMENT LIMITED Buy Neutral UBS
5 FORTESCUE METALS GROUP LTD Buy Neutral UBS
6 INDEPENDENCE GROUP NL Buy Sell Citi
7 METCASH LIMITED Neutral Sell UBS
8 OZ MINERALS LIMITED Buy Sell Morgan Stanley
9 RETAIL FOOD GROUP LIMITED Neutral Sell UBS
10 SOUTH32 LIMITED Buy Neutral Morgan Stanley
11 WHITEHAVEN COAL LIMITED Buy Neutral UBS
Downgrade
12 AGL ENERGY LIMITED Neutral Buy Citi
13 ASALEO CARE LIMITED Sell Neutral Citi
14 AWE LIMITED Sell Neutral Citi
15 CALTEX AUSTRALIA LIMITED Neutral Buy Deutsche Bank
16 INDEPENDENCE GROUP NL Neutral Buy Morgan Stanley
17 INVOCARE LIMITED Sell Neutral UBS
18 TABCORP HOLDINGS LIMITED Neutral Buy Credit Suisse
19 TOX FREE SOLUTIONS LIMITED Neutral Buy UBS
20 WESTFIELD CORPORATION Neutral Buy Ord Minnett

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 60.0% 33.0% 27.0% 5
2 OZL OZ MINERALS LIMITED 63.0% 38.0% 25.0% 8
3 AWC ALUMINA LIMITED 7.0% -7.0% 14.0% 7
4 CTX CALTEX AUSTRALIA LIMITED 50.0% 36.0% 14.0% 7
5 MTS METCASH LIMITED 7.0% -7.0% 14.0% 7
6 FMG FORTESCUE METALS GROUP LTD 44.0% 31.0% 13.0% 8
7 TWE TREASURY WINE ESTATES LIMITED -8.0% -21.0% 13.0% 6
8 WHC WHITEHAVEN COAL LIMITED 6.0% -6.0% 12.0% 8
9 OSH OIL SEARCH LIMITED 56.0% 44.0% 12.0% 8
10 ANZ AUSTRALIA & NEW ZEALAND BANKING GROUP 21.0% 19.0% 2.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 TAH TABCORP HOLDINGS LIMITED 38.0% 63.0% -25.0% 4
2 HT1 HT&E LIMITED 83.0% 100.0% -17.0% 6
3 AGL AGL ENERGY LIMITED 64.0% 79.0% -15.0% 7
4 IVC INVOCARE LIMITED -21.0% -7.0% -14.0% 7
5 APO APN OUTDOOR GROUP LIMITED 67.0% 80.0% -13.0% 6
6 ASX ASX LIMITED -63.0% -50.0% -13.0% 8
7 SWM SEVEN WEST MEDIA LIMITED -50.0% -40.0% -10.0% 6
8 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED -50.0% -40.0% -10.0% 6
9 TCL TRANSURBAN GROUP 50.0% 57.0% -7.0% 6
10 AWE AWE LIMITED -20.0% -17.0% -3.0% 5

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 1.566 1.433 9.28% 5
2 MTS METCASH LIMITED 2.991 2.820 6.06% 7
3 WHC WHITEHAVEN COAL LIMITED 3.688 3.481 5.95% 8
4 TWE TREASURY WINE ESTATES LIMITED 13.758 13.361 2.97% 6
5 TAH TABCORP HOLDINGS LIMITED 4.938 4.838 2.07% 4
6 CTX CALTEX AUSTRALIA LIMITED 35.494 34.909 1.68% 7
7 OZL OZ MINERALS LIMITED 9.128 8.978 1.67% 8
8 ASX ASX LIMITED 52.239 51.444 1.55% 8
9 IVC INVOCARE LIMITED 14.243 14.043 1.42% 7
10 TCL TRANSURBAN GROUP 12.917 12.747 1.33% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 SWM SEVEN WEST MEDIA LIMITED 0.695 0.734 -5.31% 6
2 HT1 HT&E LIMITED 2.567 2.700 -4.93% 6
3 OSH OIL SEARCH LIMITED 7.880 8.059 -2.22% 8
4 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 3.448 3.498 -1.43% 6
5 APO APN OUTDOOR GROUP LIMITED 5.230 5.286 -1.06% 6
6 AGL AGL ENERGY LIMITED 27.309 27.476 -0.61% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ILU ILUKA RESOURCES LIMITED 22.729 19.071 19.18% 7
2 SYR SYRAH RESOURCES LIMITED -9.528 -10.344 7.89% 5
3 SPO SPOTLESS GROUP HOLDINGS LIMITED 8.550 8.033 6.44% 3
4 WHC WHITEHAVEN COAL LIMITED 44.318 41.943 5.66% 8
5 BHP BHP BILLITON LIMITED 203.197 195.687 3.84% 8
6 FMG FORTESCUE METALS GROUP LTD 55.646 53.729 3.57% 8
7 WSA WESTERN AREAS NL 5.958 5.758 3.47% 7
8 ORE OROCOBRE LIMITED 16.963 16.629 2.01% 6
9 AWC ALUMINA LIMITED 16.564 16.276 1.77% 7
10 IAG INSURANCE AUSTRALIA GROUP LIMITED 37.475 36.850 1.70% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 NST NORTHERN STAR RESOURCES LTD 33.623 36.480 -7.83% 7
2 AQG ALACER GOLD CORP 40.741 43.369 -6.06% 5
3 MYR MYER HOLDINGS LIMITED 6.850 7.250 -5.52% 7
4 OML OOH!MEDIA LIMITED 24.040 25.400 -5.35% 5
5 OGC OCEANAGOLD CORPORATION 30.246 31.780 -4.83% 6
6 CWY CLEANAWAY WASTE MANAGEMENT LIMITED 5.033 5.217 -3.53% 5
7 RRL REGIS RESOURCES LIMITED 29.903 30.903 -3.24% 8
8 NUF NUFARM LIMITED 51.811 53.274 -2.75% 7
9 TCL TRANSURBAN GROUP 23.828 24.385 -2.28% 6
10 EVN EVOLUTION MINING LIMITED 17.035 17.285 -1.45% 8

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CHARTS

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