Weekly Reports | Feb 12 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 February 5 to Friday February 9, 2018
Total Upgrades: 21
Total Downgrades: 18
Net Ratings Breakdown: Buy 42.01%; Hold 41.22%; Sell 16.78%
The February reporting season in Australia has quite unexpectedly provided investors with a lot to think about. And we're only one week into the season.
Wall Street is correcting, pushing local equities into a whirlwind of day-to-day volatility. Against this background, stockbroking analysts seem busier than usual in issuing upgrades and downgrades for ASX-listed entities. Let's not forget the corporate results releases, which is why February carries the tag of reporting season.
For the week ending Friday, 9th February 2018, FNArena registered no less than 21 upgrades in broker recommendations and 18 downgrades. National Australia Bank was the sole recipient of two upgrades, while on the negative side, Carsales was downgraded three times following its interim report (only once to Sell), while AGL Energy's market update attracted two downgrades, as did James Hardie.
If investors draw from this the conclusion that local reporting season has been more of a mixed bag thus far, despite robust expectations, they are correct.
AMP also reported, and received one upgrade, as did Ardent Leisure (pre-release update,) Centuria Industrial REIT, Macquarie (update on guidance), Magellan Financial, Mirvac, NAB, Shopping Centres Australasia, Tabcorp and Village Roadshow (update).
But then Carsales reported too, as did AGL Energy, Amaysim (update), Ardent Leisure, Greencross (update), James Hardie, Medibank Private, Mirvac and Rhipe; and they were all downgraded.
In case you are somewhat confused, both Ardent Leisure and Mirvac were upgraded and downgraded post result/update.
In terms of price targets, both Speedcast International (new contract) and James Hardie (profit result) enjoyed a gain in double digit percentage, with things remaining rather benign otherwise. Average gains are noticeably larger than negative adjustments for the week.
Queensland based quarry operator Wagners and Viva Energy REIT took the largest hits (-7%), followed by AGL Energy and Tabcorp.
Positive revisions to earnings forecasts continue to be dominated by resources stocks but the week's number one position was reserved for renewable energy company Infigen Energy, with the real fireworks showing up on the negative side. Ardent Leisure, Alacer Gold and Independence Group all suffered dramatic falls in EPS estimates, while Class, Wesfarmers, Village Roadshow, Mineral Resources and CommBank saw analysts paring back expectations. In most cases, this reflects a negative re-adjustment post results release.
The local reporting season shifts up to a higher gear in the week ahead.
ARDENT LEISURE GROUP ((AAD)) Upgrade to Buy from Sell by Citi .B/H/S: 2/3/1
Having stuck with a Sell rating for the past twelve months, Citi has now double-whammy upgraded to Buy. The immediate trigger that led to the change in view is because operating momentum for both Main Event and Theme Parks is improving.
In addition, point out the analysts, US tax cuts should also add to bottom line improvement. Target price jumps to $2.40 from $1.50.
Note: H1 core net profits are anticipated to come out as a loss of -$2.2m.
See also AAD downgrade.
AMP LIMITED ((AMP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/4/0
2017 results exceeded guidance. As revenue growth and earnings improvement is constrained in the three divisions under review, Macquarie believes any divestments could create grounds for a positive surprise and upgrades to Outperform from Neutral.
The broker adjusts earnings per share estimates down by -7.8% in 2018 and -3.1% in 2019 to reflect changes to methodology. Target is raised to $5.65 from $5.50.
ANSELL LIMITED ((ANN)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/3/0
UBS reviews forecasts ahead of the first half result next week. The broker envisages some tailwinds are set to boost earnings over the short to medium term.
These include the persistence of robust industrial growth, raw material price deflation into the second half and a decline in the USD/EUR rate.
While the broker is cautious about the ability to generate consistent organic growth over the longer term, current conditions are too compelling to ignore and the rating is upgraded to Neutral from Sell. Target is raised to $26 from $21.
AUSTRALIAN UNITY OFFICE FUND ((AOF)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/0/0
First half results were slightly ahead of Credit Suisse and FY18 guidance has been reconfirmed. The broker observes a solid start to the year in leasing activity. Portfolio occupancy has increased to 94.4%.
The broker upgrades to Outperform from Neutral. Target is $2.46.
AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/4/2
Credit Suisse upgrades to Neutral from Underperform because of the weakness in the share price since the announcement of the QCA draft UT5 decision. Target is raised $4.75 from $4.70.
In the coal segment, the broker forecasts FY18 earnings to increase by 12% because of several Pacific National coal haulage contracts being up for renewal and the recent rebounding coal prices.
Nevertheless, FY18 EBIT estimates are lowered by -3% because of a one-off impact to coal segment margins from the timing of revenue related to the cyclone in FY17.
BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/1/0
Ord Minnett has upgraded to Accumulate from Hold with an increased price target to $16.30 from $16.00. The moves suggests we have missed a change in view since early November.
Glad that's been sorted now. Essentially, the broker believes the weakness in share price is not justified given the improving macro-economic background.
Interestingly, the analysts suggest market consensus forecasts are behind the curve and will need to be upgraded post the upcoming interim results release, scheduled for Feb 26.