Weekly Ratings, Targets, Forecast Changes

This story features A2 MILK COMPANY LIMITED, and other companies. For more info SHARE ANALYSIS: A2M

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 19 to Friday February 23, 2018
Total Upgrades: 45
Total Downgrades: 23
Net Ratings Breakdown: Buy 42.66%; Hold 41.75%; Sell 15.59%

"Busy" no longer covers it. In the third week of the local February reporting season, ending on Friday, 23rd February 2018, FNArena registered no less than 45 upgrades for individual ASX-listed entities accompanied by 23 downgrades. The combo JPMorgan/Ord Minnett has now joined the three Ms (Macquarie, Morgans and Morgan Stanley) in carrying more Buy ratings for stocks under coverage than either Neutral or Sell ratings.

Among the stand-outs on the positive side are Corporate Travel Management, Domain Holdings, Fairfax Media, Flight Centre, GWA Group, St Barbara, a2 Milk, Village Roadshow and Wesfarmers; all received multiple upgrades after their result releases.

On the flipside, BHP received multiple downgrades, as did Super Retail.

The stark difference between the two groups can serve as an indication as to how the current reporting season is shaping up.

Upgrades to target prices (and thus valuations) have come in plenty and large with a2 Milk commanding top spot for the week, thanks to a gain of (wait for it) 57.5%. Next in line are Seven Group Holdings, Nine Entertainment, ERM Power, Corporate Travel Management and Smartgroup Corp.

A lot less lucky are IPH ltd whose consensus target lost -23% during the week, followed by Super Retail, Michael Hill, South32 and Blackmores. The underlying positive picture is that target increases are on average much larger than the reductions.

Santos' 86% jump in forward EPS estimates was good for the week's top spot in earnings estimates increases. Santos handsomely beat Infigen Energy (+69%), followed by Oil Search, Smartgroup and Seven Group Holdings.

King of the negative amendments, at least for this week, is Senex Energy, whose forecasts were slashed by -130%, followed by Fletcher Building, Perseus Mining and WiseTech Global.

Local reporting season moves into the final three days this week.

Upgrade

THE A2 MILK COMPANY LIMITED ((A2M)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 4/1/0

First half results beat expectations across the board. With significant financial capacity and a commitment to further investment in marketing, Credit Suisse expects the company to double its revenue stream in 10 years.

FY18 earnings forecasts are unchanged because of the timing of marketing expenditure but FY19 and FY20 are raised by 9% and 19% respectively. Rating is upgraded to Outperform from Neutral. Target is raised to NZ$12.75 from NZ$8.50.

Deutsche Bank was expecting a strong result, but what A2 Milk released was still a "strong beat". Announcing a strategic agreement with Fonterra further lifted overall sentiment.

The analysts believe the agreement unlocks the global brand potential from a supply perspective, among other positives. It all results in a "material" upgrade to the broker's growth profile for the company, which pushes up the price target to NZ$14 (up 52%).

China brand momentum remains both critical and positive, suggest the analysts. Upgrade to Buy from Hold.

ABACUS PROPERTY GROUP ((ABP)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/2/0

Abacus sharply outpaced the broker after a non-recurring fee and transactional income landed earlier than expected.

Citi believes second-half guidance could be conservative, noting a potential shift to more recurring income, and the flagged move to reinvest cash from residential projects into income producing assets, which could lift the payout ratio. The broker notes risks on the residential apartment planning front, with potential delays on Parramatta projects.

Citi upgrades to Neutral from Sell and lifts the target to $3.31 from $3.30, noting its forecasts are already 6.5% above implied guidance.

APN OUTDOOR GROUP LIMITED ((APO)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/0

FY17 results were "not great" in the broker's opinion. Of most interest was the second half sales growth of 2% in Roadside against an 11% forecast, a big miss for the company's biggest division.

Credit Suisse lowers EPS forecasts by -7-8%. With turnaround measures either complete or in train the broker expects a better performance in 2018.

The broker upgrades to Outperform from Neutral and raises the target price to $5.05 from $4.70.

See also APO downgrade.

ARB CORPORATION LIMITED ((ARB)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

Macquarie does not suggest whether ARB's "quality" result beat its forecast, but an upgrade to Outperform follows. Domestic conditions remain robust and the outlook is positive, the broker suggests.

Export markets are strengthening and the company's initiatives have improved revenue growth, which should lead to margin expansion. Greater market confidence in the improving growth outlook should prompt a re-rating, the broker believes. Target rises to $21.00 from $17.70.

See also ARB downgrade.

BLUESCOPE STEEL LIMITED ((BSL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/1/0

Low risk is expected around the first half result, due out February 26, given guidance was upgraded in December to around $460m in EBIT. Credit Suisse upgrades US Northstar earnings on the adoption of higher US steel spreads.

The broker upgrades to Outperform from Neutral on the favourable outlook and valuation. Target rises to $15.90 from $14.95.

CARDNO LIMITED ((CDD)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 1/0/0

Cardno's first-half beat the broker again, thanks to strong cost control. EBITDA came in 6% ahead of forecast, although revenue fell across most operations and geographies by roughly -5% to -9%.

Cardno maintains FY18 guidance and an FY19 growth target of 10%-15%. Deutsche Bank expects bolt-on acquisitions should add incremental growth and lifts FY18 EBITDA by 6% for FY18 and 5% for FY19.

Rating upgraded to Buy from Hold and target price jumps to $1.80 from $1.40.

CORPORATE TRAVEL MANAGEMENT LIMITED ((CTD)) Upgrade to Buy from Accumulate by Ord Minnett and Upgrade to Buy from Neutral by UBS .B/H/S: 4/1/0

The interim report was carried by a large increase in EBITDA margins, explains Ord Minnett. The broker sees yet more evidence of the strength on top of the simplicity of Corporate Travel's business model.

The European operations revealed themselves as the star performer for the period, in Ord Minnett's view. The Asian business was heavily impacted by lower airfares but management expects to achieve double digit EBITDA growth in 2H18 vs pcp.

Estimates were lifted. Price target moves to $24.36 from $21.98. Rating upgraded to Buy from Accumulate with the analysts lauding "the strength of the business model".

First half results were just shy of UBS estimates. ANZ and Europe were the stand-outs while N America and Asia faced challenging conditions.

Management has upgraded to the top end of FY18 EBITDA guidance range of $120-125m. Recent changes to US tax rates should increase FY19 NPATA by $4.3m. UBS has increased EPS forecasts for FY18-20 by 4-6%.

UBS upgrades to Buy from Neutral and raises the target to $25.85 from $23.25.

CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Add from Hold by Morgans .B/H/S: 3/2/0

First half results were ahead of forecasts. Morgans lifts operating earnings forecasts for FY18-21 by 1-2%.

The company envisages recent changes to the Chinese importation of municipal recycled waste as an opportunity, by assisting local governments to mitigate the issue.

Morgans upgrades to Add from Hold. Target is raised to $1.68 from $1.61.

DOMAIN HOLDINGS AUSTRALIA LIMITED ((DHG)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/2

First half results were in line with expectations. Credit Suisse believes uncertainty about management in the near term – the CEO has departed – has created an opportunity to buy into the longer-term growth story at an attractive price.

The rating is upgraded to Outperform from Neutral as a result. Target reduced to $3.50 from $3.55.

It was a strong debut result for Domain, Macquarie declares, with revenue momentum holding up through the period. Price rises, the adoption of depth products and moderating cost growth all contributed.

The broker sees Domain as well-positioned in the longer term given opportunities in both the developed markets of Syd/Melb and Canberra, and the "emerging markets" of everywhere else, specifically Qld and the commercial space, as well as adjacent businesses.

Upgrade to Outperform. Target unchanged at $3.50.

ESTIA HEALTH LIMITED ((EHE)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/2/0

The solid first half result was in line with UBS estimates. The 100% dividend pay-out ratio was a surprise to the upside.

FY18 EBITDA guidance was reiterated at mid-single digit percentage growth, with updated UBS forecast now sitting at $92.1m.

UBS upgrades to Buy from Neutral. Target is raised to $4.00 from $3.75.

ERM POWER LIMITED ((EPW)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

While ERM's result beat Morgans, earnings volatility makes a comparison with the previous corresponding period difficult. The highlight was an improved gross margin outlook for domestic retailing, which the broker notes is the largest earnings segment.

Australian retailing is stronger but US retailing much weaker than expected. Management has targeted a minimum 7c dividend, kept capital aside for growth investment, and initiated a buyback. All this from a company that 18 months ago was forced to cut its dividend, the broker notes.

Morgans "cautiously" upgrades to Add, with the caveat of high risk. Target rises to $1.93 from $1.39.

FLIGHT CENTRE LIMITED ((FLT)) Upgrade to Neutral from Sell by Citi and Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 2/4/2

First half results were above the top end of guidance ranges despite the disruption to the core Australian business. Citi notes the results were driven by the US, EMEA and Asia, which have been challenged from a profitability perspective for many years.

The broker believes the earnings risk is weighted to the upside. Initial caution around transformation targets has been allayed by the early progress being made. Rating is upgraded to Neutral from Sell. Target is raised to $54 from $45.

First half results were better than Morgan Stanley expected, driven by acquisitions and cost savings. The broker expects total transaction value growth to accelerate in the second half.

The broker lifts FY18-FY20 EPS forecasts by 8-16% to reflect cost-out execution and growing international performance.

Morgan Stanley upgrades to Equal-weight from Underweight. Target rises to $54 from $38 to reflect lower capex and expanding corporate business. Industry view is Cautious.

FAIRFAX MEDIA LIMITED ((FXJ)) Upgrade to Buy from Hold by Deutsche Bank and Upgrade to Buy from Neutral by UBS and Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/2/0

First half results were well ahead of estimates and Deutsche Bank notes the better earnings in metro media and significantly lower corporate costs.

The result demonstrates a focus on maximising value for the remaining assets in the business, the broker suggests. Rating is upgraded to Buy from Hold. Target rises to $0.80 from $0.75.

First half results were better than UBS expected, with the company delivering the second consecutive half of EBITDA growth.

Earnings momentum is improving, the broker notes, and analysts now expect group EBITDA to remain stable over FY18/FY19. This results in a 5% lift to FY18 EPS forecast and a 16% lift to FY19 forecast.

The stock looks cheap to UBS and is upgraded to Buy from Neutral. Target price is $0.75.

Fairfax posted a solid result, Macquarie suggests, with improved earnings from metro media a highlight in the face of structural decline. Earnings still fell, but were offset by aggressive cost cuts.

The medium term outlook is bolstered by proposed cooperation with rival News Corp ((NWS)) for printing and distribution, and an advertising partnership with Google. While Domain's earlier result indicates it is well-placed for growth, Macquarie notes.

A combination of resilience in media and Domain strength prompts an upgrade to Outperform. Target rises to 79c from 71c.

FLEXIGROUP LIMITED ((FXL)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/0

Citi analysts have been biding their time, waiting for that trigger that would allow for the gap between share price and valuation to close. It appears they now think yesterday's interim report release might be that trigger. Upgrade to Buy from Neutral.

The analysts have increased forecasts by 2-7%, with the added suggestion that risk is now skewed to the upside. The stabilisation in Certegy represents an important factor in this view.

Target price rises by 14% to $2.14. The shares are seen trading on a -64% discount to the Small Industrials.

GWA GROUP LIMITED ((GWA)) Upgrade to Add from Hold by Morgans and Upgrade to Neutral from Sell by Citi and Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 2/3/1

First half earnings were well ahead of expectations. The result was driven by market share gains, improved product mix and cost control. Morgans increases FY18 earnings estimates by 4%.

Despite some uncertainty surrounding the residential building market, the broker believes the valuation is attractive, given the lightly geared balance sheet and strong returns. Rating is upgraded to Add from Hold. Target rises to $3.30 from $3.07.

GWA Group's half-year result impressed the broker, who says it heralds a new era for the company.

The prolonging of its housing cycle and announcement to sell its Door and Access Systems contributed to an upgrade to Neutral. Citi expects the prolonging of the completions cycle should protect earnings from a softening in the housing cycle.

Broker upgrades earnings-per-share forecasts for FY18-FY20 to 9% from 4%.

Target price jumps 18% to $2.93, the broker citing upside risk. Citi says given the stock is trading at its long-term average price-earnings multiple of 14x, a re-rate is possible pending clarity on divestments.

First half results were ahead of estimates. Credit Suisse observes the early stages of the reinvestment in brand and product has allowed for growth despite the current stagnation of the housing cycle.

The broker suspects the company will be able to grow through a soft housing market. Rating is upgraded to Outperform from Underperform. Target is raised to $3.40 from $2.90.

IRESS MARKET TECHNOLOGY LIMITED ((IRE)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 0/4/0

2017 results were at the top end of the prior guidance range and ahead of Ord Minnett's forecasts. Given the substantial number of acquisitions over the last couple of years the broker awaits signs of a sustained recovery in profitability before becoming more constructive.

Nevertheless, the drop in the share price since January leads to a raising of the recommendation to Hold from Lighten. Target is $11.

MICHAEL HILL INTERNATIONAL LIMITED ((MHJ)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/1/0

The company had issued a profit warning pre reporting season and yesterday's release came in-line, with Credit Suisse observing no guidance was provided. Uncertainty revolves around the Emma & Roe repositioning in combination with the exit from the USA.

Greater than expected losses have triggered reduced forecasts. In addition, CS analysts have now incorporated lower margins for the Australian operations.

While the price target falls to NZ$1.45 from NZ$1.55, the rating has been upgraded to Outperform from Neutral, inspired by the share price fall.

MOELIS AUSTRALIA LIMITED ((MOE)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0

It was a transformational year for Moelis, state Ord Minnett analysts, but that hasn't prevented them from delivering a financial performance that was well above what the analysts had penciled in (7% better). The broker believes Moelis has an "appealing" business model.

Add a strong balance sheet and plenty of growth options and what's not to like? Rating upgraded to Buy from Hold. Target price lifts to $6.18 from $5.72. Earnings estimates have received a boost.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 1/4/2

Medibank Private's results impressed the broker. Deutsche Bank noted a $34m claims provision release boosted the result, but it demonstrates positive momentum on claims management.

The broker notes strong margin momentum resulting from cost control and lower hospital utilisation.

Deutsche Bank upgrades to Buy from Hold, on the basis of stabilising customer numbers and growth potential in Medibank Health.

Target rises to $3.35 from $3.20.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/3/3

Ord Minnett observes the stock has underperformed the US dollar and Australian dollar gold price as well as mid-cap peers. Yet, despite major production disruptions and a shrinking portfolio, the company is considered in better shape than it has been for many years.

The balance sheet has been repaired, gearing is 16% and free cash flow is improving while there are accretive growth options. Ord Minnett upgrades to Accumulate from Hold. Target is raised to $25.00 from $22.50.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/2/1

UBS was impressed by the first half results, which showed revenue share at 13-year highs. This lead to a 20% beat of the broker at EBITDA.

UBS believes FY18 guidance of $231-261m looks slightly conservative and is factoring FY18 EBITDA of $262m.

The broker upgrades to Neutral from Sell and raises the target price to $1.90 from $1.35.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/2/0

The January quarter was soft post the scheduled shut down at the New Acland plant over Christmas. Coal sales rose to 2.3mt.

Credit Suisse adjusts numbers to reflect its new thermal coal price forecasts, which are up 17% for 2018 and 24% for 2019.

Rating is upgraded to Neutral from Underperform. Target is raised to $2.25 from $1.85.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Neutral from Sell by Citi .B/H/S: 0/5/2

Management has upgraded guidance but Citi maintains the risk is to the upside. Their own forecast remains well above increased guidance for this year.

Estimates have been increased by 6-8%. Target price lifts by 50c to $6.50. Rating upgraded to Neutral from Sell as Citi believes the growth profile looks strong, but so is the valuation.

The financial result itself was a "beat", but the analysts point towards one-offs, while admitting underlying trends remain "strong".

ST BARBARA LIMITED ((SBM)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/1

First half earnings were in line with expectations. The extra guidance for Gwalia, with a materially improved production and cost profile, adds to Credit Suisse's valuation on base case assumptions. Furthermore, these assumptions should be enhanced by infill drilling and increasing the grade profile.

Rating is upgraded to Neutral from Underperform. Target is raised to $3.85 from $3.00.

First half operating earnings were below expectations. The main news was the introduction of a new project at Gwalia, which extends the mine life to 14 years from seven years.

Ord Minnett estimates the new mining strategy could add $400m in value, or $0.80 a share, over the previous mine plan. Rating is upgraded to Accumulate from Hold. Target is raised to $4.30 from $3.80.

SMARTGROUP CORPORATION LTD ((SIQ)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0

The 2017 result itself was in-line, but Citi analysts have been impressed (again) -and that's their way of putting it, literally- by the strong organic growth on display. They upgrade to Buy from Neutral.

Given the strong organic growth achieved, Citi analysts suggest the stock may well trade on higher multiples. Earnings estimates have been increased. Target price jumps by 22% to $12.22.

To juice investors' appetite further, Citi still sees plenty of opportunities to enhance organic growth further, as well as increase margins.

SANTOS LIMITED ((STO)) Upgrade to Neutral from Sell by UBS .B/H/S: 3/4/1

It was a messy affair, in UBS's assessment, with the underlying FY17 result missing expectations, both at UBS and as far as market consensus is concerned.

The positive take-away is that, after cutting costs, Santos looks to be on track to shrink net debt to below $2bn by the end of 2019. Not only is this well ahead of schedule, it also allows for the return of shareholder dividends in 2019, points out UBS.

The broker upgrades to Neutral from Sell on a weak share price, noting that the above should also allow for an increase in growth investment. Given the flat production outlook, at best, one can see the importance of it. Target remains $5.25.

SUPER RETAIL GROUP LIMITED ((SUL)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/5/0

The company's first half results were underwhelming for the broker. With operating costs increasing and a number competitive challenges impacting gross margins, the medium term profit outlook looks decidedly poor to Credit Suisse.

The integration of Amart was completed with mixed results and there was no mention of the previously targeted $15m synergy in the update.

The company is guiding to broadly flat EBIT margin in FY18 which the broker views as "challenging".

Rating upgraded to Neutral from Underperform and target falls to $7.07 from $7.68.

See also SUL downgrade.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 5/3/0

Ahead of the results on February 21 Credit Suisse expects dividend guidance of 37.5c per share. The broker expects a positive outlook on growth and a focus on improvements to operations.

Rating is upgraded to Neutral from Underperform because of the recent weakness in the shares. Target is reduced to $6.75 from $6.80.

See also SYD downgrade.

TABCORP HOLDINGS LIMITED ((TAH)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/0/0

Credit Suisse considers overall earnings growth of 14.2% for FY18 and 28.1% for FY19 to be attractive at the current share price. This growth largely reflects the merger with Tatts.

The broker upgrades to Outperform from Neutral. Target is $5.20.

THE REJECT SHOP LIMITED ((TRS)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/1/0

The company is making inroads fixing ailments from the past, while also improving foot traffic and UBS spotted enough evidence in the interim release to anticipate more improvement ahead.

The analysts acknowledge the achieved improvement in financial performance comes off a low base, and risks remain, but at the same time "substantial" opportunities are there for management to capitalise on, in their view.

UBS upgrades to Buy from Neutral, with the price target shifting to $7.50 from $6.30. In particular DPS estimates have received a boost.

VILLAGE ROADSHOW LIMITED ((VRL)) Upgrade to Hold from Lighten by Ord Minnett and Upgrade to Neutral from Underperform by Macquarie and Upgrade to Buy from Neutral by Citi .B/H/S: 1/3/0

First half results were softer than expected, with the main driver being theme parks which delivered a -31% decline in operating earnings. The company stated that theme parks have shown a significant recovery in January, with ticket yield up 30% and admission revenue up 24%.

Ord Minnett welcomes the positive developments but would prefer to wait for an extended recovery, given recent disappointments. The broker upgrades to Hold from Lighten. Target is $3.25.

Macquarie sees an improving outlook for Village Roadshow post result release. Improvement at Gold Coast theme parks suggests upside risk to earnings and capital structure is more sustainable.

After a weak first half, management sees better content driving improvement in cinema in the second half but the broker notes structural headwinds in the form of video on demand and streaming services.

Risk/reward potential is nevertheless better reflected in the current price, hence Macquarie upgrades to Neutral from Underperform. Target rises to $3.50 from $3.30.

A worried Citi has remained on the sideline for a long while, but now the analysts believe the time is right for an upgrade to Buy from Neutral. Improved theme park momentum seems to be the trigger point.

The analysts concede, after five disappointing results releases from the company, investors might need some extra convincing before starting to embrace Village Roadshow as a viable investment again.

Price target has lifted to $3.90 from $3.45 with higher forecasts further out supported by the company's cost out ambition.

WEBJET LIMITED ((WEB)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/0/1

First half results were materially better than forecast. Credit Suisse observes the company has successfully de-risked the core flights business through ancillary products. Despite a history of weak first half cash flow worst fears did not materialise, the broker adds.

Credit Suisse believes the short-term overhang on the stock will continue to unwind and upgrades to Outperform from Neutral. Target rises to $13.65 from $11.80.

Admittedly, the broker notes there are still some headwinds to navigate as Online Republic is still underperforming and a merger of technology platforms remains possible.

WESFARMERS LIMITED ((WES)) Upgrade to Hold from Sell by Deutsche Bank and Upgrade to Neutral from Sell by Citi .B/H/S: 1/6/1

First half earnings were slightly ahead of estimates. Deutsche Bank still envisages risks around the UK operations amid continued large operating losses or the potential for substantial exit costs.

While the bad news around the UK investment should now be well understood and Coles is unlikely to resume meaningful growth for some time, the broker believes there are signs earnings have stabilised.

Meanwhile, Bunnings Australasia and Kmart are well-positioned. The broker believes the risk/reward is now balanced and upgrades to Hold from Sell. Target rises to $40 from $37.

For Citi's initial assessment, see yesterday's Broker Call Report. After second consideration, Citi has now upgraded to Neutral from Sell, while bumping up the price target to $41 from $39.30.

FY17 results revealed sales momentum has stalled at Coles, but margins are coming in better than expected and this feeding into improved forecasts. The analysts do point out further investment is required to restart momentum at Coles.

The good news, as Citi sees it, is the supermarket operators are seemingly behaving rationally for now. The outlook for the conglomerate as a whole has improved, say the analysts, because of stabilisation in EBIT margin declines for Coles on top of the sustained earnings growth for Bunnings (outside the UK). Woolworths ((WOW)) remains the preferred choice.

Downgrade

APN OUTDOOR GROUP LIMITED ((APO)) Downgrade to Hold from Add by Morgans .B/H/S: 3/3/0

2017 results were in line with expectations. The new CEO, James Warburton, has outlined a plan to rebuild the company involving a step up in investment in personnel and technology. Morgans suggests this may provide long-term benefits but will make earnings growth almost impossible in 2018.

The broker slashes profit forecasts to reflect higher costs and higher ongoing capital expenditure. Rating is downgraded to Hold from Add. Target is reduced to $4.44 from $5.48.

See also APO upgrade.

ARB CORPORATION LIMITED ((ARB)) Downgrade to Neutral from Buy by Citi .B/H/S: 1/2/0

Citi believes it is time to take some profits in light of the strong start to FY18 in the first half. Rating is downgraded to Neutral from Buy. The broker increases FY19-20 forecasts by 6-7%.

Citi expects the PE will moderate over the short term. Target is raised to $22.43 from $17.85 as the model is rolled forward amid index multiple expansion.

The broker believes the company will further distance itself from its competitors in the second half and gain more scale domestically.

See also ARB upgrade.

BHP BILLITON LIMITED ((BHP)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 4/4/0

First half results were weaker than expected. Net debt was higher than expected. Citi expects net debt to fall by the end of FY18, which means capital management could be on the cards at that result.

Productivity gains were also a challenge because of a major shut down at Olympic Dam but were made worse by Queensland metallurgical coal issues, the broker observes. Citi downgrades to Neutral from Buy. Target is $32.

First half results were below expectations. Deutsche Bank considers the value and returns strategy is priced into the stock.

The company's targets imply no buyback in August, in the broker's view, unless US onshore assets are sold.

Rating is downgraded to Hold from Buy. Target is reduced to $31.50 from $34.50.

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

Credit Suisse has downgraded to Neutral from Outperform with a reduced target to $130 from $150, suggesting the share price might remain under pressure short term, but also emphasising it remains "optimistic" on the company's growth prospects.

The analysts explicitly do a mea culpa, admitting they got caught up in the growth excitement, putting Blackmores on the same level as, say, Treasury Wine Estates ((TWE)).

Following the interim report, the analysts now suggest Blackmores will still grow, but it won't be at a spectacular rate. They also observe competitor Swisse seems to be performing better.

BLUE SKY ALTERNATIVE INVESTMENTS LIMITED ((BLA)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/2/0

First half results were strong, with headline net profit up around 60%. Assets under management guidance is upgraded but higher costs mean Ord Minnett reduces FY18 forecasts by -6%.

The broker considers the stock has little valuation support in light of its underlying FY19 PE of 25x. Rating is downgraded to Hold from Buy. 

A lack of clarity in scope and source as well as the unpredictability of Cove earnings holds Ord Minnett back from believing the stock should trade on any higher PE. Target is raised to $12.72 from $11.00.

ELANOR INVESTORS GROUP ((ENN)) Downgrade to Accumulate from Buy by Ord Minnett .B/H/S: 1/0/0

Removing the impact of the one-off gain from the sale of Ibis Eaglehawk meant underlying earnings were below forecasts. Ord Minnett observes the main culprit was a poor performance from John Cootes Furniture.

Completion of several transactions on the go in the near term is far from certain and the broker suggests performance fees in the second half may be at risk. Rating is downgraded to Accumulate from Buy. Target reduced to $2.06 from $2.62.

HT&E LIMITED ((HT1)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

2017 results were largely in line with estimates. UBS notes Adshel outperformed the broader market in both Australia and New Zealand while Hong Kong outdoor also improved.

Despite meeting expectations, UBS downgrades to Neutral from Buy, now incorporating a potential liability from the ATO tax dispute. Target is reduced $1.80 from $2.25.

IPH LIMITED ((IPH)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/2/0

IPH posted a miss, with a greater than expected forex loss but a softer than expected underlying result nonetheless, Macquarie notes. Management expects reversion to normal patent growth in the second half.

Despite the attractive growth optionality provided by Asian expansion, the broker suggests the stock will trade at a discount until there is evidence of a recovery in patent filings. Downgrade to Neutral from Outperform. Target falls to $3.85 from $5.75.

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

InvoCare posted a solid result ahead of Macquarie's forecast. FY guidance nevertheless surprised to the downside, suggesting flat earnings growth due to capital spending on the company's protect & grow strategy.

Protect & grow is in its early stages and is intended ultimately to increase market share in the face of increasing competition, while growing return on invested capital. InvoCare is confident in a return to double-digit earnings growth but the broker highlights forecast in the early stages.

Downgrade to Neutral from Outperfom and target falls to $14.34 from $15.31.

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/2/0

First half results were 21% ahead of UBS estimates, largely reflecting a significantly higher first time contribution from the LAS acquisition.

UBS has lifted FY18 EPS forecast by 8.8% and 0.3% in FY19. With the broker's medium term revenue growth outlook already at 3-3.5%, large scale funds admin client wins are required to drive further upside.

Rating is downgraded to Neutral from Buy. Target is raised to $9.10 from $8.85.

LOVISA HOLDINGS LIMITED ((LOV)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

First half results were in line with recently upgraded guidance. Morgans notes the UK roll-out is building momentum and the first trial store in Paris is now open.

The broker remains attracted to the business model as there is less exposure to Amazon and there is potential for a large-scale global chain.

Rating is downgraded to Hold from Add, given the recent share price re-rating. Target is raised to $8.08 from $7.84.

OOH!MEDIA LIMITED ((OML)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 4/1/0

2017 gross profit was ahead of expectations. Credit Suisse believes the risk/reward profile warrants a more circumspect view. Most of the business is performing well but there are areas that require caution.

The company continues to press on with an elevated capital expenditure program despite industry growth declining to mid-low single digits, the broker notes. Rating is downgraded to Neutral from Outperform. Target is raised to $4.95 from $4.75.

PERPETUAL LIMITED ((PPT)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 0/5/1

First half results beat estimates. Credit Suisse suggests, given continued outflows and risks that come with a new CEO, the stock is back to fair value.

Rating is downgraded to Neutral from Outperform. Target is $56.

SEEK LIMITED ((SEK)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 2/3/3

It was another solid result from Seek, Macquarie notes, highlighting strengthening fundamentals. Heavy reinvestment to drive longer term growth remains a key theme but underscores management's confidence.

Early stage ventures are showing revenue improvement but visibility remains limited, although Macquarie remains supportive of Seek's strategy and the longer term outlook.

However recent share price strength has stretched valuation, hence a downgrade to Neutral from Outperform. Target rises to $20.35 from $18.70.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/2

First half results were in line with expectations. Credit Suisse upgrades second half estimates on confirmed volumes.

The broker recognises that consensus earnings may be upgraded on the result and this could support the share price for a while.

However, Credit Suisse downgrades to Underperform from Neutral on the basis of share price strength. Target is raised to $14.50 from $14.00.

THE STAR ENTERTAINMENT GROUP LIMITED ((SGR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 7/1/0

First half earnings were mixed. Net debt was higher than Credit Suisse modelled while Gold Coast earnings surpassed the broker's forecasts.

While the first half was costly, the broker believes good growth remains intact. Costs are the main reason the broker downgrades forecasts for earnings per share by -6%.

Hence, rating is downgraded to Neutral from Outperform although the growth prospects are considered attractive. Target is reduced to $5.90 from $6.25.

SIRTEX MEDICAL LIMITED ((SRX)) Downgrade to Neutral from Buy by UBS .B/H/S: 0/3/0

First half results were in line with UBS estimates. A soft top line was more than offset by sales force and R&D cost out.

As previously announced, Sirtex has entered into a binding agreement with Varian Medical Systems for the company to acquire all of Sirtex's shares for $28 cash.

UBS downgrades the stock to Neutral from Buy and moves the price target into line with the offer price of $28.00.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 3/5/0

First half earnings were disappointing to the broker. Morgan Stanley believes the company's capital allocation has been poor in recent years, and the Macpac acquisition is the catalyst for a downgrade to Equal-weight from Overweight.

The broker believes the company should be allocating capital to its stronger divisions, especially Auto, where it has a proven track record and a strong franchise. Retailers moving into brand ownership are rarely successful in the broker's view.

Morgan Stanley has lowered FY18 to FY20 EPS forecasts by -10-20%. Target reduced to $7 from $10.00. Industry View: Cautious.

First half earnings were below expectations. Deutsche Bank is surprised by the acquisition of Macpac, given the problems the company has had with the category.

The broker would have preferred to see the focus on internal initiatives, rather than a risky acquisition. Rating is downgraded to Hold from Buy. Target is reduced to $9.50 from $11.00.

See also SUL upgrade.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 5/3/0

Sydney Airport's result met Macquarie's expectation. The 2018 outlook remains strong, with international traffic growing at 5.3%, but of concern is an ever increasing capex budget. The broker assumes this will be recovered in the next pricing agreement.

The company continues to perform at the operational level. The broker's downgrade to Neutral from Outperform reflects a forecast increase for the ten-year bond rate to 4.25% from 3.25%. Target falls to $6.40 from $7.46.

See also SYD upgrade.

VIRTUS HEALTH LIMITED ((VRT)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

First half results were ahead of forecasts. Upside risk, Morgans believes, involves a further stabilisation of cycle volumes to reinforce the view that the market is returning to its long-term growth rates of 2-3%. Heightened competition presents downside risk.

The broker downgrades to Hold from Add given recent share price strength. Target is raised to $5.47 from $5.46.

WESTPAC BANKING CORPORATION ((WBC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 4/4/0

Morgan Stanley as downgraded Westpac to Equal-weight and lowered its target to $30.00 from $32.10. The broker has a negative stance on the major banks but provides six reasons for its Westpac downgrade.

The margin sweet spot has ended, the capital intensity of retail banking is increasing, there is growing scrutiny of conduct and competition, little scope for a cost surprise, no institutional tailwind this year and the stock is fully valued.

The broker prefers ANZ Bank ((ANZ)), also Equal-weight, and has Underweight ratings on the other two. Industry view: In Line.

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