Weekly Reports | Feb 05 2018
By Rudi Filapek-Vandyck, Editor FNArena
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.
Period: Monday January 29 to Friday February 2, 2018
Total Upgrades: 21
Total Downgrades: 15
Net Ratings Breakdown: Buy 41.83%; Hold 41.50%; Sell 16.67%
Last week the Australian share market's resilience in the face of Wall Street weakness was supported by stockbroking analysts issuing a high number of upgrades for ASX-listed stocks. Among the 21 upgrades registered by FNArena for the week ending Friday 2 February, 2018 we find a number of bond proxies, early reporters of corporate results, and even two banks.
Pipeline operator, and bond proxy, APA Group was the sole recipient of two upgrades for the week, both went to Neutral from Sell.
Among the 15 downgrades registered for the week, six ended with a Sell recommendation; Medibank Private, Northern Star, Sandfire Resources, South32, TPG Telecom and Village Roadshow. The latter was forced to, again, issue a profit warning.
The mix between Buy/Hold/Sell ratings for the eight stockbrokers monitored daily by FNArena has now shifted in that Buy and equivalent ratings have become the largest contingent with 41.83% of all recommendations, beating the Neutral/Holds with 41.50% and the Sells at 16.67%.
Macquarie, Morgans and Morgan Stanley remain the only three brokers, out of the eight, who carry more Buy ratings than Hold/Neutrals.
Positive revisions to valuations and price targets for the week are dominated by resources stocks, led by Beach Energy, but with jewellery retailer Lovisa on second spot. The negative side carries much lower numbers with Village Roadshow the biggest loser, followed by Viva Energy and Fortescue Metals.
A noticeable switch from previous weeks has taken place in earnings estimates with the balance for the week firmly favouring negative adjustments. Amongst the heaviest hit, we find QBE Insurance, Perseus Mining and Independence Group, as well as Virgin Australia, Fortescue Metals and 3P Learning.
Among those enjoying positive revisions, we find Beach Energy, Platinum Asset Management, Treasury Wine Estates and Lovisa Holdings.
The week ahead will see the local reporting season gather steam, with FNArena preparing to launch its permanent Reporting Season Monitor (which we expect will add even more value to the service), but with Wall Street unable to fight gravity on the back of rising bond yields, macro movements will feature large for the Australian share market this week.
AIR NEW ZEALAND LIMITED ((AIZ)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/2/1
Credit Suisse observes diverging operating trends. Improving yield and stronger domestic load factors have been offset by an increase in the Singapore jet fuel price.
Given the hedging profile, the broker expects limited impact on the current year but the outlook and potential quantum of downgrades for FY19 and FY20 are considered more uncertain.
Credit Suisse now believes the stock presents a more balanced risk/reward and upgrades to Neutral from Underperform. Target is raised to NZ$2.96 from NZ$2.90.
APA GROUP ((APA)) Upgrade to Neutral from Sell by Citi and Upgrade to Add from Hold by Morgans .B/H/S: 3/2/2
Citi is cautious about Australian utilities because of macro and competitive headwinds that create uncertainty. These include any remaining political intervention risk, interest rates, the entry of Alinta into the market as well as commodity markets.
For the regulated utilities, given the outlook is relatively benign and Citi is not materially bearish on interest rates, value appears to have emerged and APA is upgraded to Neutral from Sell. Target is raised to $8.18 from $8.01.
Morgans forecasts around 1% growth in operating earnings at the first half, with growth hampered by lower CPI, re-contracting and no substantial incremental earnings from growth projects.
Nevertheless, the recent decline in the share price back to the lower end of recent ranges provides a buying opportunity in the broker's opinion.
Rating is upgraded to Add from Hold. Target is reduced to $8.58 from $8.67.
AP EAGERS LIMITED ((APE)) Upgrade to Add from Hold by Morgans .B/H/S: 1/2/1
While trading remains difficult, Morgans believes AP Eagers is now better placed to grow earnings in 2018 thanks to a restructured base business and likely increase in acquisitions, among other factors. Rating upgraded to Add ahead of results season.
Target unchanged at $9.10.
ASX LIMITED ((ASX)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/4/4
Citi observes strong secondary capital raisings have nudged up earnings per share. The first half recorded total capital raisings of $44.8m, up 22%.
The cash market has been lacklustre in the first half and the broker notes exit momentum has been similarly weak.
Citi lifts FY18 estimates for earnings per share by 0.5% and the target to $55.30 from $54.90. Rating is upgraded to Neutral from Sell.