Weekly Ratings, Targets, Forecast Changes

This story features BEGA CHEESE LIMITED, and other companies. For more info SHARE ANALYSIS: BGA

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 26 to Friday March 2, 2018
Total Upgrades: 20
Total Downgrades: 14
Net Ratings Breakdown: Buy 42.69%; Hold 42.17%; Sell 15.14%

The final week of the February local reporting season continued to reveal a true frenzy among stockbroking analysts, with FNArena registering 20 upgrades and 14 downgrades for individual ASX-listed entities for the week ending Friday, 2 March 2018.

Among those receiving upgrades, Costa Group received two, as did Spark Infrastructure. Among the downgrades, Caltex received two, and was the sole recipient of more than one downgrade (both went to Neutral from Buy).

When it comes to target prices, the resurrecting Nine Entertainment claimed prime glory for the week enjoying a gain of 21%, followed by NextDC, ERM Power and Costa Group. On the flipside, the largest reduction (-5%) was for bling retailer Michael Hill, followed by Ramsay Health Care, HT&E and Domain Holdings.

Average increases to consensus price targets are significantly higher than average reductions.

Earnings estimates saw some ginormous increases with Perseus Mining, QBE Insurance and Iluka Resources all enjoying increases in excess of 100%, followed by Speedcast International, BlueScope Steel and Reliance Worldwide. Here consensus reductions are equally firm with Macquarie Atlas Group suffering most (-44%), followed by Virgin Australia, Orocobre and Alumina Ltd.

The week ahead will be considerably quieter representing the traditional lull post an eventful month.

Upgrade

ARDENT LEISURE GROUP ((AAD)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/4/1

First half results were significantly below forecasts, largely related to one-off charges in theme parks. Ord Minnett is encouraged by the trends in theme parks and Main Event, with some early signs that the turnaround effort is working.

The broker upgrades to Hold from Lighten based on valuation. Target is raised to $1.95 from $1.73.

BEADELL RESOURCES LIMITED ((BDR)) Upgrade to Buy from Neutral by Citi .B/H/S: 1/2/0

2017 results were weaker than expected but the headline loss included a non-cash write-down of low-grade stockpiles.

Citi upgrades to Buy/High Risk from Neutral/High Risk, as the share price has been slapped down and the Tucano upgrade is now funded, but stresses that debt and high operating expenditure makes the stock high risk. Target is reduced to 15c from 21c.

BEGA CHEESE LIMITED ((BGA)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/1/0

First half results were ahead of estimates. UBS found the market's reaction to the strong result was tempered by lower-than-expected guidance for FY18 earnings and commentary regarding margin pressure.

The broker believes this provides an attractive entry point and upgrades to Buy from Neutral. Target is reduced to $7.90 from $8.30.

CAPITOL HEALTH LIMITED ((CAJ)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 1/0/0

First half results were in line with expectations. Ord Minnett believes the company is set to participate in strong industry growth rates and its balance sheet offers opportunities for acquisitions.

Meanwhile, attention is on the proposed takeover of Integral Diagnostics ((IDX)) as successful completion is far from certain. Regardless of the outcome, the broker believes the stock presents good value and upgrades to Buy from Accumulate. Target is $0.32.

COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Buy from Neutral by UBS and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/0/0

First half results were ahead of estimates. The produce result was the highlight for UBS, beating forecasts by around 31% and driven by citrus and tomatoes. Berry revenue was flat, reflecting heavy deflation over the half.

UBS upgrades estimates for earnings per share by 3-5% across FY18-20. The broker believes the company is well placed to outperform and the valuation is attractive. Rating is upgraded to Buy from Neutral. Target is raised to $7.50 from $6.80.

First half results were ahead of forecasts and show significant progress, Ord Minnett observes. Citrus underpinned the result and the broker expects citrus to decline next year, although positive export prices should restrict the impact.

Ord Minnett increases earnings forecasts by 16% for FY19, noting management is building its growth options, driven by berries, avocados, mushrooms and expansion overseas. Rating is upgraded to Accumulate from Hold. Target is raised to $7.52 from $6.03.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 1/3/2

In case of any doubt (which we very much doubt), Harvey Norman's interim report was a disappointment. Credit Suisse analysts point at the Australian franchisee segment where earnings reflected increasing costs and increasing competition.

CS is forecasting more of the same with a cooling housing market in Sydney and Melbourne. Also, the first defense against online competition is investing in online sales, and this weighs on margin, explain the analysts. This is an industry-wide burden.

Target price falls to $4 from $4.03. Upgrade to Neutral from Underperform post sharp sell-off post results release.

See also HVN downgrade.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/3/1

A solid result from Iluka beat Macquarie on both earnings and free cash flow. The dividend increase is a surprise given the step-up in capex planned for 2018. The highlight was a positive outlook for zircon and rutile prices.

Macquarie has materially upgraded earnings forecasts to reflect price guidance, noting Iluka's current rutile contract price is well below spot.

Nevertheless, valuation remains limited at this level. Upgrade to Neutral from Underperform. Target rises to $10.50 from $8.80.

MIRVAC GROUP ((MGR)) Upgrade to Buy from Sell by Citi .B/H/S: 4/2/1

Citi has double upgraded to Buy from Sell, while bumping up the share price target to $2.35 from $2.16. Despite softer residential conditions, the analysts believe earnings certainty is improving with 90% of major apartment projects due for completion through to FY20 having been pre-sold.

Earnings estimates have lifted by 9% and the analysts note Mirvac shares are now the cheapest among peers, despite "robust" growth prospects and with the company implementing a share buyback.

MACQUARIE ATLAS ROADS GROUP ((MQA)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 6/0/0

2017 results were a little better than expected. Morgan Stanley suggests the year ahead will be complex but ultimately worthwhile for investors. APRR is expected to perform well.

Should the board negotiate internalisation the broker expects this to be a positive, via reduced corporate costs.

Rating is upgraded to Overweight from Equal-weight. Target is raised to $6.26 from $5.86. Industry view: Cautious.

MYOB LIMITED ((MYO)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

Full year results were in line with Credit Suisse but at the low end of the company's guidance range. 2018 guidance was largely as expected.

The broker makes minor changes to revenue forecasts following guidance for "8-10% organic growth". The broker also adjusts numbers for the Reckon deal, lowering 2018 EPS forecast by -3% on higher costs.

MYOB faces a challenging competitive environment and a period of higher investment but its valuation is compelling, the broker notes, and moves to Outperform from Neutral. Target price rises to $3.75 from $3.60.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Buy from Neutral by UBS .B/H/S: 6/0/0

In the wake of the recent production downgrade, and increased capex forecast, UBS believes the worst is now behind Oceana. The broker's key concern has been the Didipio ramp-up but revised guidance, that sees the project reaching nameplate production by end-2019, increases confidence.

The broker suggests production guidance may prove conservative and downside risk has abated. Upgrade to Buy. Target rises to $4.00 from $3.40.

OROCOBRE LIMITED ((ORE)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 5/1/1

Orocobre's first half results were well ahead of Deutsche Bank forecasts, driven by a higher profit from the Olaroz JV.

The broker expects production from Olaroz to lift in the March quarter to 4,250t LCE at a cost of US$3,600/t, generating a 70% margin. Along side this, Deutsche Bank believes the new Chinese EV subsidy scheme for electric vehicles will result in less demand disruption than the market previously feared.

This leads the broker to upgrade to Buy from Hold.  Target is raised to $7.70 from $7.40.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 4/3/1

QBE's full year results were in line with expectations, having been pre-reported in January. GWP and NEP was slightly weaker but the balance sheet deteriorated a little less than Credit Suisse had forecast.

The company has retained the $1bn buyback despite the fall in earnings. The broker believes that with the company sitting at the low end of the capital target and a debt to equity position above 40%, management should focus on repairing the damaged balance sheet in the near-term.

With QBE underperforming the market by -21% in the last twelve months the broker upgrades to Neutral from Underperform and raises the target to $10.20 from $9.85.

QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/0

First half results were ahead of estimates. Credit Suisse raises FY18 estimates for earnings per share by 11% and FY19 by 17% because of a stronger performance in ports & bulk.

Logistics remains challenged but the broker expects management to deliver improvements.

Rating is upgraded to Neutral from Underperform. Target is raised to $2.35 from $2.30.

RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/5/0

Post interim report release and subsequent sell-off, Citi analysts have upgraded to Buy from Neutral, pointing out the shares have not been this "cheap" over the past five years. FY18-20 EPS forecasts have been lifted by 1%.

The analysts acknowledge growth is now happening at a slower pace than historically, but there will still be growth with an anticipated positive momentum shift in the Australian operations expected to outweigh weak offshore performance (UK and France).

Citi suggests the specific PHI affordability issues plaguing the sector is now well understood by investors, and this has been priced in accordingly. Price target moves to $78.50 from $74.50. DPS estimates have been reduced.

See also RHC downgrade.

SPARK INFRASTRUCTURE GROUP ((SKI)) Upgrade to Neutral from Underperform by Credit Suisse and Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/4/0

Full year results were ahead of Credit Suisse. The broker notes the company's cash flow outlook continues to deteriorate for a number of reasons.

Guidance for growth in distributions was given as "at least CPI" through 2018-2020, in line with consensus forecasts but below the 4-5% plus delivered since 2011.

With the stock now trading in line with DCF based valuation the broker upgrades to Neutral from Underperform and raises the price target to $2.45 from $2.40.

2017 net profit was slightly ahead of estimates. Ord Minnett observes the result was characterised by strong cash flow and cash has been retained to fund growth opportunities.

The broker upgrades to Accumulate from Hold on the basis of valuation, raising the target to $2.60 from $2.55. Growth from unregulated assets potentially provides further upside.

See also SKI downgrade.

SOUTHERN CROSS MEDIA GROUP ((SXL)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/2/2

For UBS, the negative surprise in the Southern Cross result was costs to be flat in FY18 from FY17 despite the Northern NSW TV divestment, given investments elsewhere and higher revenue-related costs. The stock is trading on a similar valuation to FTATV peers despite growing radio audiences.

Which makes it look cheap, the broker suggests. 2018 should be the year the industry sees consolidation activity post the relaxation of media laws, and while Southern Cross wants to focus on organic initiatives, it is positioned to exploit M&A opportunities if they arise.

Upgrade to Buy. Target falls to $1.20 from $1.25.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/3/3

Ord Minnett believes the biggest downside risk for the company is cash flow but the stock is looking more attractive on a valuation basis.

The broker suggests the stock price is not factoring in much growth and approximately 10% of estimated value comes from growth projects that are valued on a risk-weighted basis.

These include small near-term projects such as Senegal and Myanmar and larger longer-term projects such as Scarborough and Browse.

Ord Minnett upgrades to Hold from Lighten and raises the target to $29.70 from $29.00.

Downgrade

ADELAIDE BRIGHTON LIMITED ((ABC)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 1/3/2

It was a result that came out in-line, comment the analysts, including the 4c in special dividend, but given the share price had rallied pre-results release, it simply wasn't good enough. Morgan Stanley continues to have a problem with the valuation, and thus downgrades to Underweight from Equal-weight rating.

While management remaining bullish on the basis of continued strength in East Coast construction markets, Morgan Stanley cautions there remains the niggling factor of rising costs (energy). Volumes of lime imports are another factor that can spoil this party, the analysts point out.

Target remains unchanged at $6.00. Industry view: Cautious.

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

First half results marked a strong return to growth, although slightly missed upgraded guidance, which Morgans notes was provided post balance date.

FY18 EBIT guidance of $40-44m is reiterated. Morgans suggests the second half growth rates required to achieve this are not demanding.

The broker downgrades to Hold from Add, believing the company is not far away from cycling very strong comparables. Catalyst also owns a 30% stake which is out of escrow. Target is $2.28.

AUTOMOTIVE HOLDINGS GROUP LIMITED ((AHG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/3/0

First half results suggest to Credit Suisse that, while the trajectory of the business has improved, much is dependent on the success of the sale of refrigerated logistics to HNA.

The risk that the deal falls over is higher than would typically be the case, as HNA is currently undertaking asset sales to reduce debt.

If the deal does not go ahead the company will be stuck with a capital-hungry refrigerated logistics business, the broker observes. Pending confirmation of the deal the rating is downgraded to Neutral from Outperform. Target is raised to $3.85 from $3.60.

APOLLO TOURISM & LEISURE LTD ((ATL)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

First half results were in line with expectations. Forward bookings are strong in New Zealand and North America while Australia is in line with the company's expectations.

Management remains comfortable with current FY18 consensus net profit forecasts of around $19-19.5m.

Morgans observes the stock screens attractively but, as it is now trading within 10% of the new target, downgrades to Hold from Add. Target is reduced to $1.93 from $2.03.

CALTEX AUSTRALIA LIMITED ((CTX)) Downgrade to Neutral from Buy by Citi and Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/4/1

Full year results were broadly in line with December's guidance and a little above Citi.

The company has announced plans to more than double own-operated stores by transitioning the 496 owned but franchised sites to Caltex operation stores by mid 2020. Management aims to deliver 10-15% EPS growth within 5 years.

Citi downgrades to Neutral from Buy and increases the target price to $39.71 from $37.66.

2017 net profit was ahead of estimates. Ord Minnett notes the retail operating model is changing to corporate from franchise, with costs that will weigh on the earnings in the near term. The broker notes many options are being pursued to improve shareholder returns and the retention of Woolworths ((WOW)) petrol volumes are now more likely.

Recent share price appreciation has reduced the size of the multiple uplift and Ord Minnett is also less confident regarding significant divestments. Rating is downgraded to Hold from Accumulate. Target is $37.50.

EUREKA GROUP HOLDINGS LIMITED ((EGH)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

First half results were mixed, Morgans observes, but on track.  FY18 guidance implies a flat full year with a strong second half skew because of the contribution from three new villages as well as the divestment of underperforming villages.

Morgans applies a -35% discount to peers to reflect the ongoing market discontent with Terranora strata approval issues and downgrades to Hold from Add. Target is lowered to $0.34 from $0.41.

GALAXY RESOURCES LIMITED ((GXY)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 2/2/1

A revised lithium price forecast has reduced the stock's valuation and Morgan Stanley also moves to a balanced bull versus bear case weighting.

The latest price deck refreshes the broker's base case view and now incorporates the risks of increased supply from Chile.

Rating is downgraded to Equal-weight from Overweight. Target is reduced to $3.05 from $3.50. Industry View: Attractive.

HARVEY NORMAN HOLDINGS LIMITED ((HVN)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/3/2

UBS found little to like in the first half result, which was softer than expected. Net debt was higher and the dividend disappointed. Comments regarding capital management suggest this is less likely in the near term.

The broker believes earnings risk is now to the downside for the franchisee segment and downgrades to Neutral from Buy. Target is reduced to $4.10 from $5.77.

See also HVN upgrade.

MONASH IVF GROUP LIMITED ((MVF)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

First half results were in line with guidance. Margins were affected by competition from Primary Healthcare's ((PRY)) low-cost operation and the transition of a Sydney-based facility to a premium offering, Morgans notes.

The broker was surprised by FY18 guidance, which has called for a net profit to be -25% lower than FY17. The broker adjusts forecasts accordingly. As a result, valuation falls significantly.

Rating is downgraded to Hold from Add as the broker believes competitive pressures will continue to suppress earnings over the next few years. Target is reduced to $1.25 from $1.52.

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

First half results were ahead of expectations. Morgans upgrades EBITDA forecasts by 4% for FY18 and 6% for FY19.

The broker notes generation 2 sales are moving along at a healthy rate. S2 impresses, with 18% of capacity already sold despite not being built.

Rating is downgraded to Hold from Add, after the strong run up in the share price. Target rises to $7.01 from $6.39.

RANGE INTERNATIONAL LIMITED ((RAN)) Downgrade to Reduce from Hold by Morgans .B/H/S: 0/0/1

2017 earnings were broadly in line. While management is working hard to reduce costs Morgans remains concerned about the cash burn, suspecting another capital raising may occur over the next 6-9 months.

For this to be successful, the broker suggests the company needs to allay concerns around sales execution and instability at board level.

Rating is downgraded to Reduce from Hold. Target is reduced to 3c from 7c.

RAMSAY HEALTH CARE LIMITED ((RHC)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/5/0

First half results were ahead of Ord Minnett's forecast, mainly due to lower interest and tax expenses. The 57.5c dividend was 3% above the broker's estimate.

The broker estimates the company will have to boost its second half domestic EBIT by more than 11% to deliver the bottom end of its guidance range.

Ord Minnett downgrades the stock to Hold from Accumulate. Target drops substantially to $67.50 from $80.

See also RHC upgrade.

SPARK INFRASTRUCTURE GROUP ((SKI)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/4/0

Spark Infrastructure's profit came in slightly ahead of Macquarie although composition was not as expected. While 2018 dividend guidance did not surprise, 2019-20 dividend growth guidance of "at least CPI" is well below the 5%+ pace of growth seen in the last seven years, the broker notes.

This is a concern. Macquarie has lifted its ten-year bond rate assumption to 4.25% from 3.25% although this only impacts Spark's valuation until the next price reset for 2021-25. But slowing dividend growth means Spark Infrastructure is no longer differentiated from other regulated assets, and market concern over rising rates leads to the broker to downgrade to Neutral from Outperform.

Target rises to 2.67 from $2.65.

See also SKI upgrade.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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