Weekly Ratings, Targets, Forecast Changes

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

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 February 12 to Friday February 16, 2018
Total Upgrades: 25
Total Downgrades: 14
Net Ratings Breakdown: Buy 42.31%; Hold 41.07%; Sell 16.62%

Halfway through the February reporting season, time-wise, but hardly one quarter through the number of Australian companies scheduled to report financial performance this month, local stockbroking analysts are busy as bees upgrading and downgrading individual ASX-listed stocks.

For the week ending Friday, 16th February 2018, FNArena registered no less than 25 upgrades and 14 downgrades, with many related to financial reports released.

On the positive side, Breville Group, Origin Energy, Suncorp and Newcrest Mining all stand out with double upgrades in response to market updates. On the negative side, the limelight was stolen by Myer and South32, both good for two downgrades following disappointing performances.

Plenty of swings in updates for valuations and price targets, yet the table for positive revisions contains one a handful that seem worth mentioning. AWE ltd grabs top spot for the week with a gain of 12.8%, followed by Computershare, Cimic, Cochlear and CSL (otherwise known as the Four Cs).

Negative adjustments are heavy, with Myer taking the hardest hit (-23%), followed by Karoon Gas, AGL Energy, Wagners Holdings, South32 and SG Fleet.

The undeniable good news story is with analysts making amendments to earnings forecasts. Whereas the table for positive revisions shows large numbers, the flipside is hardly worth mentioning. Infigen Energy enjoyed the largest increase for the week, beating Mount Gibson, Woodside Petroleum, Insurance Australia Group, Mineral Resources, 3P Learning, and others.

Reporting season genuinely gathers steam in the week ahead.

Upgrade

AWE LIMITED ((AWE)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 0/4/1

Morgan Stanley upgrades to Equal-weight from Underweight given the corporate approaches for the company. Target price is upgraded to $0.95 from $0.45. Industry view: In-Line.

BENDIGO AND ADELAIDE BANK LIMITED ((BEN)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/5/1

First half results were just shy of expectations. UBS was impressed by the 10 basis points expansion in net interest margin. The bank is a price taker in most products but UBS believes its strong customer offering places it in a good position to reduce deposit costs relative to peers.

Forecasts are upgraded slightly based on the assumption the bank continues to focus on lowering funding costs. Given the fall in the share price UBS upgrades to Neutral from Sell. Target is $10.50.

BORAL LIMITED ((BLD)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/2/0

Citi has passed no comment on Boral's actual result, rather concentrating on FY guidance. The broker has lifted EPS (and subsequently DPS) forecasts on the back of a reduced US tax rate, and this leads to a target increase to $7.32 from $6.94 and an upgrade to Neutral.

However, Citi has left its before-tax earnings forecasts unchanged post result, and notes the underlying performance in the business featured US margins going backwards despite a highly supportive construction environment. Where is the leverage? the broker asks.

See also BLD downgrade.

BREVILLE GROUP LIMITED ((BRG)) Upgrade to Buy from Hold by Ord Minnett and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/2/0

Normalised H1 profit fell a little short of market consensus, as well as Ord Minnett's forecast, signal the analysts. But if one excludes a one-off tax charge, it was actually a minor beat.

Ord Minnett is projecting robust growth for H2, and acceleration in FY19 on the entry into new markets and successful launch of new products. Even the prospect of increased spending on marketing and R&D cannot temper their enthusiasm.

The most attractive feature of Breville's growth, states Ord Minnett, is that it is self-funded and global. Despite a premium valuation, Ord Minnett upgrades to Buy from Hold (that's two steps into one move). Target price jumps to $15.60 from $11.

First half results were ahead of Credit Suisse estimates. The broker has reviewed its thesis and notes sales growth is accelerating and the company is successfully cycling periods of strong launches of new product.

The broker suggests management is deploying capital wisely and upgrades to Outperform from Neutral. Guidance signals softer second half growth and the broker acknowledges the company will be impacted by the transition in Germany/Austria.

Target is raised to $13.50 from $12.70.

CIMIC GROUP LIMITED ((CIM)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/2/2

Credit Suisse expects 2018 net profit at the top end of guidance. The company is guiding for net profit of $720-780m, up 3-11% on 2017.

The broker upgrades to Neutral from Underperform with a new analyst assuming coverage of the stock. Target is raised to $45 from $28. The broker notes the tender pipeline is up 10% on 2017 and cash conversion remains solid.

COCHLEAR LIMITED ((COH)) Upgrade to Neutral from Sell by Citi and Upgrade to Hold from Reduce by Morgans .B/H/S: 0/4/2

Cochlear posted a slight miss against Citi's forecast but this can be explained by investment in growth and lumpy emerging markets. The N7 processor will drive second half revenue and profit growth, the broker suggests.

On the wider scale, Citi believes there are very good prospects for growth from the company's world's-best portfolio of products. A 30x forward PE looks expensive but long run growth potential is very rare and earnings forecast justify a high multiple.

The recent share price decline prompts an upgrade to Neutral. Target rises to $175 from $160.

First half results were broadly in line with Morgans although the headline numbers were underwhelming. Unit growth was modest, affected by the timing of tenders, the broker believes.

Morgans continues to question the transition to a service-oriented model and remains cautious about the roll out of the N7 sound processor.

The broker was hoping the results would provide more understanding regarding the viability of the new strategy. Guidance appears achievable, and on this basis the broker upgrades to Hold from Reduce. Target is raised to $153.60 from $131.30.

EVENT HOSPITALITY AND ENTERTAINMENT LTD ((EVT)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/1/0

Event Hospitality and Entertainment's first-half outpaced the broker, prompting an upward revision in the rating to Neutral from Sell, and a sharp increase in the target rice to $13.20 from $11.70.

City notes the -14% retreat in the share price since July. The hotels division performed strongly and the broker notes a reduction in costs and says that while the outlook has calmed, risks remain.

The broker applies a 10% premium to its price-earnings valuation to reflect its confidence in the new CEO's direction.

GOODMAN GROUP ((GMG)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/3/0

First half earnings were ahead of Deutsche Bank, with strong growth from the management division. The broker had assumed an upgrade to guidance but this was higher than expected. FY18 guidance is for operating earnings growth of 8.0%.

Deutsche Bank upgrades to Buy from Hold following the results and raises the target to $8.52 from $8.31.

GALAXY RESOURCES LIMITED ((GXY)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/1/1

Citi believes the recent correction is overdone and upgrades to Buy from Neutral. Target is steady at $4.60.

While supply side responses are expected to bring lithium prices down the broker believes this is already implied in the share price.

HEALTHSCOPE LIMITED ((HSO)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/3/2

Healthscope's first half fell short of the broker on most estimates but Citi upgrades the stock to Neutral from Sell, noting the sharp retreat in the share price and the likelihood of an improved performance in the second half.

The broker doubts the company's capacity to hit second-half guidance given pressure on revenue and recent underperformance.

Target price rises to $1.80 from $1.70.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/6/0

First half results were ahead of Deutsche Bank forecasts. Lower claims costs and long-tail reserve releases were the primary drivers of the beat to estimates.

The company is putting its Asian franchise up for review and the broker suggests a return to focus on the Australasian markets would be considered a positive.

Rating is upgraded to Buy from Hold and the target to $7.80 from $7.00.

See also IAG downgrade.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Equal-weight from Underweight by Morgan Stanley and Upgrade to Buy from Neutral by Citi .B/H/S: 1/4/3

Morgan Stanley upgrades to Equal weight from Underweight following the quarterly production report. The upgrade is driven by the view that there is minimal downside and this provides valuation support for the equity.

Company specific catalysts include results from the study that is underway at Wafi-Golpu and Cadia East, expected in the June quarter and September quarter respectively.

Target is reduced to $20.75 from $22.00.  Attractive industry view.

Citi analysts cannot decide whether Newcrest's interim performance was in-line or slightly below expectations, but then they highlight underlying profit came out -7% below what had been expected, and no less than -18% below market consensus.

The dividend surprised as it was fully franked. The analysts believe better operating times lie ahead, supported by a more constructive outlook for gold. Cadia and Lihir should support increased gold production to 2020.

In light of the more supportive outlook, Citi has upgraded to Buy from Neutral, target price jumps to $27.10.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/1

Citi believes the recent correction is overdone and upgrades to Buy from Neutral. Target is raised to $8.00 from $7.70.

While supply side responses are expected to bring lithium prices down the broker believes this is already implied in the share price.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Buy from Neutral by UBS .B/H/S: 4/4/0

Underlying, reported net profit fell some -13% short of what Ord Minnett analysts had penciled in. But then, the interim report also revealed better-than-expected margins in the electricity portfolio on top of higher than expected sales volumes in the company's gas portfolio.

Another negative highlight were higher-than-expected operational costs. Ord Minnett takes the positive from the fact all parts of the business are showing improvement. The analysts also note Asia-Pacific LNG, commonly referred to as APLNG, continues to ramp up to capacity and has now started distributing cash back to the JV partners.

Reducing debt in combination with a weaker share price has enticed Ord Minnett to upgrade to Accumulate from Hold. Price target remains untouched at $9.65. No dividends are expected before FY20.

First half results were in line with the broker's estimates. The company increased FY18 energy market EBITDA guidance to $1.78-1.85bn, driven by better performance at Eraring and increased domestic gas trading activity.

Following the recent decline in the share price UBS upgrades to Buy from Neutral as it expects lower forecast debt levels will lead to dividend reinstatement in FY19. UBS retains the $10.40 target.

REA GROUP LIMITED ((REA)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/6/1

First half earnings were up 21.4%. Macquarie expects top line momentum will be strong in the second half, tempered modestly relative to the first half by the concentration of depth revenues and reduced listing volumes in Sydney and Melbourne.

The broker recently downgraded to Underperform on valuation grounds but notes valuations have come back to some extent and this becomes a more reasonable entry point.

To turn positive Macquarie would need to witness upside that can be generated from the upcoming price review as well as growth in adjacencies and new products. Upgrade to Neutral. Target is steady at $74.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/1

Saracen has reported high grade extensional drilling results from its Carosue Dam Operations, with notable success at Karari and Whirling Dervish. Karari is becoming a standout, Macquarie suggests, while Whiling Dervish continues to yield good results.

The broker expects the two to provide the cornerstone of a 10+ year mine life at Carosue. Upgrade to Outperform from Neutral. Target unchanged at $1.90.

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

The outlook is strong and management has demonstrated capital discipline. The stock appears to be fair value on Citi's oil price deck but there is value upside if oil prices can shift sustainably higher.

The broker upgrades to Neutral from Sell. Target is steady at $5.13.

SUNCORP GROUP LIMITED ((SUN)) Upgrade to Add from Hold by Morgans and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 6/1/1

First half cash net profit was below expectations. The main disappointment for Morgans was a -2% decline in underlying insurance margin. The broker downgrades FY18 estimates for earnings per share by -12%.

While acknowledging the flaws in the result, Morgans believes this is the low point. Significant reinsurance protections also support the second half. The broker envisages some value returning to the stock and upgrades to Add from Hold. Target is reduced to $14.31 from $14.46.

First half earnings were below Credit Suisse forecasts. The broker has been cautious about the stock over the recent months, fearing a major re-set of the general insurance margin. The re-set was larger than expected but this is now considered likely to be the bottom of the adjustment.

Credit Suisse has avoided buying the value appeal ahead of the re-set and earnings disappointment. Now this is over, the valuation is too hard to ignore and the rating is upgraded to Outperform from Neutral. $14.50 target maintained.

TRANSURBAN GROUP ((TCL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 6/2/0

Deutsche Bank has "nudged up" its price target to $13.25 (from $13.10) alongside an upgrade in rating to Buy from Hold post what the analysts describe as the release of interim financials "largely as expected".

The upgrade is explained by Deutsche Bank via the observation that the share price gap to Australian 10-year yields has now closed while the potential total shareholder return has jumped to 22%.

Coming back to the actual result, Deutsche Bank found it was "strong" and many a metric came out better than expected. Forecasts has been slightly lifted. As to why all this leads to the label "largely as expected" rather than "(slightly) better than expected" shall remain a mystery.

WESTERN AREAS NL ((WSA)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/5

Credit Suisse has revised nickel-based earnings estimates higher and upgrades the stock to Outperform from Neutral. Target is raised to $3.40 from $3.15.

The company reports is first half result on February 20.

Downgrade

ANSELL LIMITED ((ANN)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/2/1

First half earnings were below Credit Suisse forecasts. Raw material costs grew and price increases were not enough to stem the margin decline. The broker downgrades FY18 estimates by -3%.

Credit Suisse believes the stock is more than fully valued and downgrades to Underperform from Neutral. Target is reduced to $21.75 from $24.00.

BORAL LIMITED ((BLD)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/2/0

First half results were below Credit Suisse forecasts, as the maiden North American result disappointed. The company has pointed to softer market growth and operating issues related to manufacturing integration and fly ash supply.

The broker does not believe either of these is a long-term concern, but the earnings outcome requires a re-basing of near-term forecasts. Rating is downgraded to Neutral from Outperform. Target is raised to $7.70 from $7.30.

See also BLD upgrade.

CHALLENGER LIMITED ((CGF)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/6/1

First half results were broadly in line with Macquarie. The broker continues to like the earnings growth profile and longer-term structural tailwinds on offer. Macquarie transfers coverage to another analyst and considers the stock fully valued at current multiples.

While credit conditions remain benign, and there are no quality issues, the broker does observe the risk-adjusted return has narrowed. Rating is downgraded to Neutral from Outperform. Target is lowered to $12.95 from $13.44.

COMPUTERSHARE LIMITED ((CPU)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/6/2

First half results beat Credit Suisse estimates. The result was supported by strong transaction activity and organic growth. The company has upgraded FY18 guidance to growth of 12.5%.

Considering the strong result, this is a little lower than the broker expected and the company has likely taken a cautious stance on some items.

Tax guidance suggests there will be minimal benefits to a lower US tax rate and, with the share price up 35% over the last year Credit Suisse considers the stock fair value. Rating is downgraded to Neutral from Outperform.

Target is raised to $17.60 from $15.00.

CSL LIMITED ((CSL)) Downgrade to Hold from Add by Morgans .B/H/S: 4/3/0

First half results were ahead of expectations, supported by a strong turnaround in Seqirus as well as strength in the Behring business. Immunoglobulin growth also impressed Morgans, against very tough comparables.

The broker increases net profit estimates for FY18-20 by up to 4%, mainly on the back of higher sales. While considering the stock a core holding, the broker downgrades to Hold from Add, suggesting the upside is limited at current levels. Target is raised to $156.00 from $138.40.

CAPILANO HONEY LIMITED ((CZZ)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

First half results were slightly short of Morgans expectations because of modest export growth and a poor manuka season. No FY18 guidance was provided but the company expects its honey crop will be the largest in over a decade.

Expansion in China and success with new products should underpin double-digit earnings growth in FY19 and FY20, the broker suggests. With less than 10% upside to the new target Morgans downgrades to Hold from Add. Target is raised to $18.28 from $18.05.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/6/0

First half net profit was ahead of Credit Suisse forecasts. The company has increased its insurance margin guidance to 15.5-17.5% of net earned premium.

Credit Suisse notes the company has maintained its FY18 natural perils guidance despite a $78m beat in the first half.

The broker envisages upside to earnings but suggests that consensus expectations are catching up to its forecasts. Rating is downgraded to Neutral from Outperform. Target is $7.50.

See also IAG upgrade.

MYER HOLDINGS LIMITED ((MYR)) Downgrade to Sell from Hold by Deutsche Bank and Downgrade to Sell from Neutral by Citi .B/H/S: 0/2/4

It may be tough for retailers at present but Deutsche Bank's channel checks suggest Myer is underperforming peers. There is no obvious solution to halt the decline, the balance sheet is under pressure, and too many stores means a big leasing cost.

Possible corporate action is providing support but Deutsche suggests any potential suitor would only offer to acquire the equity at a price well below where its trading, given the substantial changes that would have to be made to return to any level of viability.

Downgrade to Sell. Target falls to 45c from 65c.

First half guidance suggests to Citi that earnings have declined further, driven by a loss of sales and contraction in gross margin from elevated discounting.

The broker observes Myer is facing tough decisions regarding the appropriate strategic direction. With high operating leverage, any further deterioration could result in a breach of debt covenants.

Rating is downgraded to Sell from Neutral. Target is reduced to 50c from 68c.

PRAEMIUM LIMITED ((PPS)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Praemium delivered strong margin growth in the first half as revenues outpaced expenses and UK losses shrunk considerably, Morgans notes, as economies of scale kicked in. Higher marketing and technology spend lead to reduced earnings forecasts.

Praemium's separately managed account (SMA) technology is regarded as one of the best platforms available, but a solid valuation requires a high level of revenue growth, Morgans notes. On recent share price strength the broker pulls back to Hold from Add. Target rises to 69c from 55c.

SOUTH32 LIMITED ((S32)) Downgrade to Underperform from Neutral by Macquarie and Downgrade to Reduce from Hold by Morgans .B/H/S: 1/2/5

South32 reported in line with forecasts and announced a special dividend, but FY guidance proved a major negative, Macquarie suggests, due to increased costs. Unit costs across various operations were 10-16% higher than expected.

Currencies are rising in South32's countries of operation, adding to the pressure, and Macquarie is forecasting commodity price declines. The stock continues to look attractive at spot prices, the broker notes, but this is more than outweighed by cost and production risks.

Downgrade to Underperform. Target falls to $3.10 from $3.70.

First half results were softer than expected. The deteriorating economics of the company's main assets troubles Morgans. The broker is also concerned that the company is now re-thinking its entire regional operating strategy.

The company has downgraded FY18/19 production guidance for Cannington while outlining major changes to its mine plan.

The broker was surprised by the special dividend. Rating is downgraded to Reduce from Hold. Target is reduced to $2.97 from $3.53.

SG FLEET GROUP LIMITED ((SGF)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/0

A downgrade to Neutral by Citi, despite yesterday's share price fall, indicates SG Fleet's result was indeed a miss of forecasts. Incremental growth is now harder to come by, the broker suggests, ambiguity remains regarding insurance, the heavy commercial fleet is experiencing weakness, and private sector novation is beholden to consumer sentiment.

No guidance was provided other than expectation of a strengthening competitive position and incrementally more sustainable returns. Valuation is not demanding, Citi notes, but caution is required. Target falls to $4.32 from $4.85.

VICINITY CENTRES ((VCX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/3/0

First half results were in line with Macquarie's forecasts. Macquarie has lowered FY18 to FY20 FFO forecasts by -1.5% to -3.8%, primarily reflecting lower NPI growth due to churn.

Despite the stock offering compelling value, with a 6.1% FCF yield and trading -11% below NTA, the broker downgrades to Neutral from Outperform and lowers the target price to $2.92 from $3.02.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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