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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | Jan 22 2018

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 January 15 to Friday January 19, 2018
Total Upgrades: 10
Total Downgrades: 17
Net Ratings Breakdown: Buy 40.79%; Hold 42.52%; Sell 16.69%

The Australian share market has started the new calendar year in pretty much the same fashion as it travelled through 2017; brokers are issuing more downgrades than upgrades while main indices continue to lag international peers, but underlying the trend in earnings estimates remains solid and positive, albeit mostly carried by miners and energy companies.

Plus ça change, plus c'est la même chose.

For the week ending 19 January 2018, FNArena registered ten upgrades in recommendation versus 17 downgrades. Lithium miner Orocobre received two upgrades during the week, only one to Buy. Other stocks receiving upgrades to Buy include Bellamy's, Flight Centre and Westpac.

Among the downgrades we find NextDC, OZ Minerals and South32 (all three twice), while Orocobre also received one downgrade, as did Independence Group, Santos and Vocus. The latter three downgrades were to Sell.

Orocobre also sits prominently on top of the week's table for positive revisions to price targets, followed by Platinum Asset Management, Beach Energy and Whitehaven Coal. They all enjoyed increases of at least 10%. Negative adjustments for the week are scarce and small.

The table for positive changes to earnings estimates is heavily overweighted by resources stocks and it shows via big increases with iron ore miner Mount Gibson on top, followed by Ardent Leisure and then a whole raft of mining stocks. The flipside shows more variety, but also much smaller amendments, with Tabcorp leading the negative side, followed by Beach Energy, Michael Hill and Graincorp.

The week ahead brings us the first corporate financial results ahead of the busy February reporting season, alongside continued December quarter production updates from miners and oil and gas producers. It appears local investors are once again adopting a cautious approach while awaiting further developments.

During the week past investors witnessed positive announcements from Bellamy's and Sirtex Medical; might this be an indication of things to come?

Upgrade

BELLAMY'S AUSTRALIA LIMITED ((BAL)) Upgrade to Add from Hold by Morgans .B/H/S: 2/0/0

The company has provided a strong trading update and, with the benefits of cost management, has materially upgraded FY18 earnings guidance for the second time.

Morgans sets forecasts at the top end of guidance ranges, upgrading EBITDA forecasts for FY18 and FY19 by 29.9% and 44.5% respectively, and has greater conviction in the company's growth outlook.

Rating is upgraded to Add from Hold. Providing CFDA registration is approved the broker expects FY19 and FY20 should be strong years for the company. Target is raised to $14.70 from $9.95.

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

First quarter funds under management were up 2.4%, predominantly driven by fund performance. Morgans upgrades to Add from Hold,  believing the company's diversified exposure supports a solid medium-term outlook.

The previous Hold rating was based on a short-term view to assess first-quarter flows. Target is raised to $12.28 from $11.96.

FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/2/4

UBS lifts FY18-21 estimates for earnings per share by 5-10%. The broker is more confident in the 3-5 year gross profit targets. Estimates are also closer to the company's target for 7% transaction growth and 2% pre-tax profit margin in FY20.

On the medium-term view, the broker believes Flight Centre is well-placed to outperform and upgrades to Buy from Neutral. Target is lifted to $53.60 from $47.50.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 5/1/0

Deutsche Bank notes commodities are trading well above historical real averages and marginal cost. Yet, global demand should continue to improve despite a softening in the Chinese property market.  Deutsche Bank finds base metals more attractive than the bulk miners.

Upgraded gold and copper price forecasts have benefited OceanaGold for 2018/19. Deutsche Bank upgrades to Buy from Hold on valuation and the stock remains a top pick. Target is $3.70.

OROCOBRE LIMITED ((ORE)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Add from Hold by Morgans .B/H/S: 2/3/1

Although the company has solved funding problems for stage 2 and the hydroxide plant, with its placement to Toyota Tsusho along with an entitlement offer, Macquarie points out this comes with two large caveats.

The first is that management broke a promise in 2017 that it would not raise capital. The second is the implied acknowledgement that stage 2 was underestimated.

Still, the broker notes the placement at a premium highlights a belief that lithium prices will be higher for longer. Rating is upgraded to Neutral from Underperform.  Target is raised to $7.35 from $6.50.

The company will place stock with Toyota Tsusho at $7.50 a share along with a rights issue at $6.55 a share to existing shareholders to raise $361m. This will fund the company's portion of the expansion of Olaroz.

Despite recent share price strength Morgans upgrades to Add from Hold. Target is lifted to $8.17 from $6.84.

See also ORE downgrade.

PERPETUAL LIMITED ((PPT)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/1

Funds under management rose 5.5% in the December quarter, mostly driven by market movements, Citi observes. Net outflows remain negative, although the broker notes the chunky institutional outflows were absent this time around after being in evidence in previous quarters, and this provides some cause for optimism for future flows.

Citi notes the stock is near where it was after the last quarterly update, while over the same time the market has rallied around 4%. Hence, Citi lifts its rating to Neutral from Sell. Target is raised to $51.80 from $50.25.

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

Despite a material improvement in earnings in FY17 Morgans observes the share price has significantly lagged peers, particularly Elders ((ELD)).  The broker believes the extent of the valuation gap is now unwarranted and upgrades to Add from Hold.

Catalysts include positive trading updates, further accretive M&A and corporate appeal in a consolidating sector. The broker raises the target to $3.55 from $3.15.

WESTPAC BANKING CORPORATION ((WBC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/4/0

Macquarie expects banks to return capital to shareholders via special dividends and buybacks despite a more subdued underlying earnings growth profile.

The broker continues to believe the medium-term outlook for banks is challenging, as growth will be constrained by the highly leveraged household sector and margins affected by competition.

Nevertheless, the broker finds relative value at current levels, upgrading Westpac to Outperform from Neutral. Target is raised to $35.00 from $34.50.

WHITEHAVEN COAL LIMITED ((WHC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/3

While December quarter production missed expectations, Credit Suisse suggests this may have overshadowed the fact that FY19 and FY20 guidance was actually upgraded for Narrabri.

The broker's new thermal coal price estimates, up 17% in 2018 and 24% in 2019, have now materially affected the numbers being crunched for Whitehaven Coal.

While a  reversion in coal prices is a risk, with spot still well north of forecasts and more dividends to come, the broker moves back to Outperform from Neutral.  Target is raised to $4.60 from $3.40.

See also WHC downgrade.

Downgrade

APN OUTDOOR GROUP LIMITED ((APO)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/0

The downgrade, explains UBS, is motivated by trying to balance the positives (new experienced CEO and still positive industry growth) with the negatives of increasing competition for contracts and a slowing in industry growth recently.

The company is scheduled to report 2017 results on Feb 20. Short term, UBS is not expecting much in terms of earnings growth as the company needs to absorb the loss of the Yarra Trams contract. Target remains $4.75.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 1/1/1

The company has upgraded FY18 guidance to net profit growth of around 20% versus prior expectations for "high single digit growth". This has been driven by acceleration in referrals, particularly in Western Australia, and implementation of cost reductions.

Ord Minnett is encouraged by the upgrade but, with the share price currently trading above valuation and broadly in line with the prevailing offer, downgrades to Hold from Buy and raises the target to $2.30 from $1.89.

INDEPENDENCE GROUP NL ((IGO)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 1/3/2

Deutsche Bank notes commodities are trading well above historical real averages and marginal cost. Yet, global demand should continue to improve despite a softening in the Chinese property market.  Deutsche Bank finds base metals more attractive than the bulk miners.

Deutsche Bank downgrades Independence Group to Sell from Hold on valuation. Target is raised to $3.90 from $3.70.

NEXTDC LIMITED ((NXT)) Downgrade to Hold from Buy by Deutsche Bank and Downgrade to Neutral from Outperform by Macquarie .B/H/S: 5/2/0

Deutsche Bank downgrades to Hold from Buy as the stock has significantly outperformed. The broker does not believe the current valuation provides sufficient compensation for a number of potential risks.

There is limited certainty on maintenance capex requirements for the data centres, compounded by these being heavily exposed to technological change.

The broker highlights that current conditions of rapid asset growth and high P/B values have historically signalled underperformance. Target is raised to $5.50 from $4.90.

The company may be well-positioned to benefit from strong tailwinds in the data centre industry but is currently trading at around a 40% premium to international peers, Macquarie observes.

The broker recognises the stronger medium-term growth profile but tempers its near-term view given the current valuation. Rating is downgraded to Neutral from Outperform.

Target rises to $5.50 from $4.94.

OROCOBRE LIMITED ((ORE)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/3/1

The share price appreciation has caused Citi to downgrade its rating to Neutral from Buy. The target is raised to $7.70 from $5.50.

The company is raising $361m through a $282m strategic placement to Toyota Tsusho and $79m from a one-for-20 accelerated renounceable entitlement offer.

Toyota Tsusho will be a 15% shareholder, entitled to nominate one director and appointed as a sales representative for stage 2. Funds will be applied to an expansion of Olaroz.

See also ORE upgrade.

ORIGIN ENERGY LIMITED ((ORG)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/4/0

UBS analysts are worried that global oil prices have recovered too rapidly. In addition, the analysts are anticipating lower wholesale electricity prices in 2018 due to increased focus on grid stability, supply availability & demand response.

Price target for Origin Energy has risen to $10.40 from $10.10. Rating has been downgraded to Neutral from Buy.

OZ MINERALS LIMITED ((OZL)) Downgrade to Hold from Add by Morgans and Neutral by UBS .B/H/S: 3/5/0

In the wake of the December quarter production numbers and higher copper prices, Morgans makes material upgrades to forecasts.

The broker believes several approaching catalysts, including the anticipated receipt of the Carrapateena mining lease and an update on Prominent Hill's long-term power strategy, have potential to create interest in coming months.

The stock remains a preferred copper exposure but the broker downgrades to Hold from Add following recent price strength. Target rises to $9.40 from $8.87.

Performance during the December quarter has surprised in a positive sense and UBS analysts observe management has upgraded guidances for copper volumes, with costs surprising to the downside (which is a positive).

UBS says it recently downgraded to Neutral from Buy as the shares are considered more fair value at current level. Price target is $9.73.

Also, the analysts add mining lease approval at Carrapateena and a progress update on power strategy are expected in Q1 2018.

QBE INSURANCE GROUP LIMITED ((QBE)) Downgrade to Hold from Add by Morgans .B/H/S: 2/4/2

Morgans suggests that as the December quarter was an active period for global catastrophe events, this creates some risk to 2017 guidance. Risks also exist for the second half dividend from a potential re-basing by the new CEO.

The broker downgrades to Hold from Add. Morgans finds the risks hard to ignore and needs greater clarity before shifting back to an Add rating. Target is reduced to $11.45 from $11.63.

SOUTH32 LIMITED ((S32)) Downgrade to Neutral from Buy by Citi and Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/5/2

Citi makes modest upgrades to FY18 and FY19 forecasts for earnings per share, driven by marking to market commodity prices and the accretion from buybacks.

The broker notes the December quarter production was mixed with manganese, nickel and metallurgical coal all above estimates but thermal coal, silver and alumina below. After a strong rally in the share price, Citi downgrades to Neutral from Buy and maintains a target of $3.75.

Strength in commodity prices has meant the stock has rallied almost 17% since Christmas and Credit Suisse now looks for a lower entry point. Rating is downgraded to Underperform from Neutral.

The broker concedes that, if commodity prices hold up, value will remain compelling given the state of the balance sheet and the capacity for further shareholder returns.

Target is raised to $3.50 from $3.10.

ST BARBARA LIMITED ((SBM)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/2/1

Deutsche Bank notes commodities are trading well above historical real averages and marginal cost. Yet, global demand should continue to improve despite a softening in the Chinese property market.  Deutsche Bank finds base metals more attractive than the bulk miners.

Deutsche Bank raises the target to $3.40 from $3.20 and downgrades St Barbara to Hold from Buy on valuation.

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

UBS analysts are worried that global oil prices have recovered too rapidly. They note the Santos share price is above their fair value calculation and considerable downside could follow if the Harbour bid fails to materialise.

Hence, UBS has downgraded to Sell from Neutral. Price target has gained 10c to $5.20.

TELSTRA CORPORATION LIMITED ((TLS)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/2

Macquarie expects competition to remain intense across mobile and fixed telecoms.

Competitive headwinds and the NBN roll-out continue to affect Telstra's earnings growth and create a challenging operating environment, along with the impending entry of TPG ((TPM)) into the mobile market.

Following the recent rally, the broker downgrades to Neutral from Outperform. Target is $3.70.

VOCUS COMMUNICATIONS LIMITED ((VOC)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 1/6/1

Macquarie expects competition to remain intense across mobile and fixed telecoms. The broker observes the company has stabilised some parts of its operations but continues to operate in a highly competitive and capital intensive market and this presents ongoing challenges.

Rating is downgraded to Underperform from Neutral. Target is lifted to $3.05 from $2.95.

WHITEHAVEN COAL LIMITED ((WHC)) Downgrade to Sell from Neutral by Citi .B/H/S: 3/2/3

December quarter production missed Citi's estimates and the rating is downgraded to Sell from Neutral. Target is raised to $4.20 from $4.00 as a result of marking to market coal prices, offsetting lower FY18 production and higher costs for Narrabri.

The main risk to the recommendation, in the broker's view, is if thermal coal prices, which are at US$107/t, remain above Citi's forecasts for US$89/t in 2018 and US$75/t in 2019.

See also WHC upgrade.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 BELLAMY'S AUSTRALIA LIMITED Buy Neutral Morgans
2 BT INVESTMENT MANAGEMENT LIMITED Buy Neutral Morgans
3 FLIGHT CENTRE LIMITED Buy Neutral UBS
4 OCEANAGOLD CORPORATION Buy Neutral Deutsche Bank
5 OROCOBRE LIMITED Buy Buy Morgans
6 OROCOBRE LIMITED Neutral Sell Macquarie
7 PERPETUAL LIMITED Neutral Sell Citi
8 RURALCO HOLDINGS LIMITED Buy Neutral Morgans
9 WESTPAC BANKING CORPORATION Buy Neutral Macquarie
10 WHITEHAVEN COAL LIMITED Buy Neutral Credit Suisse
Downgrade
11 APN OUTDOOR GROUP LIMITED Neutral Buy UBS
12 INDEPENDENCE GROUP NL Sell Neutral Deutsche Bank
13 INTEGRAL DIAGNOSTICS LIMITED Neutral Buy Ord Minnett
14 NEXTDC LIMITED Neutral Buy Macquarie
15 NEXTDC LIMITED Neutral Buy Deutsche Bank
16 ORIGIN ENERGY LIMITED Neutral Buy UBS
17 OROCOBRE LIMITED Neutral Buy Citi
18 OZ MINERALS LIMITED Neutral Buy Morgans
19 OZ MINERALS LIMITED Neutral Buy UBS
20 QBE INSURANCE GROUP LIMITED Neutral Buy Morgans
21 SANTOS LIMITED Sell Neutral UBS
22 SOUTH32 LIMITED Neutral Buy Citi
23 SOUTH32 LIMITED Sell Neutral Credit Suisse
24 ST BARBARA LIMITED Neutral Buy Deutsche Bank
25 TELSTRA CORPORATION LIMITED Neutral Buy Macquarie
26 VOCUS COMMUNICATIONS LIMITED Sell Neutral Macquarie
27 WHITEHAVEN COAL LIMITED Sell Buy Citi

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 PTM PLATINUM ASSET MANAGEMENT LIMITED -50.0% -75.0% 25.0% 4
2 OGC OCEANAGOLD CORPORATION 75.0% 58.0% 17.0% 6
3 DXS DEXUS PROPERTY GROUP 21.0% 7.0% 14.0% 7
4 PPT PERPETUAL LIMITED -7.0% -21.0% 14.0% 7
5 FLT FLIGHT CENTRE LIMITED -25.0% -38.0% 13.0% 8
6 WBC WESTPAC BANKING CORPORATION 50.0% 38.0% 12.0% 8
7 WOR WORLEYPARSONS LIMITED 67.0% 60.0% 7.0% 6
8 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED -43.0% -50.0% 7.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SBM ST BARBARA LIMITED 20.0% 80.0% -60.0% 5
2 BPT BEACH ENERGY LIMITED -10.0% 30.0% -40.0% 5
3 SRX SIRTEX MEDICAL LIMITED 33.0% 67.0% -34.0% 3
4 ORE OROCOBRE LIMITED 17.0% 50.0% -33.0% 6
5 S32 SOUTH32 LIMITED -13.0% 13.0% -26.0% 8
6 OZL OZ MINERALS LIMITED 38.0% 63.0% -25.0% 8
7 WHC WHITEHAVEN COAL LIMITED -19.0% 6.0% -25.0% 8
8 VCX VICINITY CENTRES 25.0% 42.0% -17.0% 6
9 APO APN OUTDOOR GROUP LIMITED 50.0% 67.0% -17.0% 6
10 SGP STOCKLAND 21.0% 36.0% -15.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ORE OROCOBRE LIMITED 7.303 5.752 26.96% 6
2 PTM PLATINUM ASSET MANAGEMENT LIMITED 5.915 5.115 15.64% 4
3 BPT BEACH ENERGY LIMITED 1.034 0.898 15.14% 5
4 WHC WHITEHAVEN COAL LIMITED 4.075 3.688 10.49% 8
5 S32 SOUTH32 LIMITED 3.498 3.316 5.49% 8
6 SBM ST BARBARA LIMITED 3.410 3.250 4.92% 5
7 OZL OZ MINERALS LIMITED 9.535 9.128 4.46% 8
8 WOR WORLEYPARSONS LIMITED 14.410 13.912 3.58% 6
9 TAH TABCORP HOLDINGS LIMITED 5.547 5.396 2.80% 6
10 RMD RESMED INC 10.822 10.565 2.43% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 DHG DOMAIN HOLDINGS AUSTRALIA LIMITED 3.434 3.448 -0.41% 7
2 VCX VICINITY CENTRES 2.887 2.922 -1.20% 6
3 SXY SENEX ENERGY LIMITED 0.370 0.374 -1.07% 7
4 SGP STOCKLAND 4.740 4.790 -1.04% 7
5 SRX SIRTEX MEDICAL LIMITED 19.127 19.227 -0.52% 3

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 MGX MOUNT GIBSON IRON LIMITED 1.133 -0.033 3533.33% 3
2 AAD ARDENT LEISURE GROUP 2.259 1.687 33.91% 7
3 OZL OZ MINERALS LIMITED 74.523 60.134 23.93% 8
4 WSA WESTERN AREAS NL 7.238 5.958 21.48% 7
5 SYR SYRAH RESOURCES LIMITED -7.595 -9.526 20.27% 5
6 MIN MINERAL RESOURCES LIMITED 145.500 132.733 9.62% 3
7 WHC WHITEHAVEN COAL LIMITED 48.455 44.318 9.33% 8
8 S32 SOUTH32 LIMITED 28.966 26.718 8.41% 8
9 AQG ALACER GOLD CORP 43.942 40.704 7.95% 5
10 FMG FORTESCUE METALS GROUP LTD 59.773 55.615 7.48% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 TAH TABCORP HOLDINGS LIMITED 16.537 20.070 -17.60% 6
2 BPT BEACH ENERGY LIMITED 7.382 8.130 -9.20% 5
3 MHJ MICHAEL HILL INTERNATIONAL LIMITED 8.300 8.733 -4.96% 4
4 GNC GRAINCORP LIMITED 38.684 40.544 -4.59% 5
5 WOR WORLEYPARSONS LIMITED 66.345 67.014 -1.00% 6
6 VCX VICINITY CENTRES 17.883 18.050 -0.93% 6
7 ARB ARB CORPORATION LIMITED 68.665 69.165 -0.72% 4
8 WPL WOODSIDE PETROLEUM LIMITED 156.605 157.602 -0.63% 8
9 CQR CHARTER HALL RETAIL REIT 30.200 30.367 -0.55% 5
10 WFD WESTFIELD CORPORATION 42.416 42.619 -0.48% 6

Technical limitations

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CHARTS

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