Weekly Reports | Feb 26 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 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.
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.