Weekly Ratings, Targets, Forecast Changes

This story features INSIGNIA FINANCIAL LIMITED, and other companies. For more info SHARE ANALYSIS: IFL

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 March 5 to Friday March 9, 2018
Total Upgrades: 9
Total Downgrades: 4
Net Ratings Breakdown: Buy 43.07%; Hold 41.70%; Sell 15.23%

For the week ending Friday, 9th March 2018., FNArena registered nine upgrades for individual ASX-listed entities against four downgrades as overall stockbroking analysts' activity slowed down post the busy February reporting season, as expected.

Two observations stand out: 14 changes in ratings impacted on 14 different stocks; all four downgrades went to Sell.

Total Buy ratings for the eight stockbrokers monitored remained firmly in the lead, with Neutrals second and Sell ratings last. Historically, this usually implies the share market is going through a rough time. Year-to-date the ASX200 Accumulation index is still in slight negative territory, confirming the historical relationship.

Gold miner Perseus Mining grabbed pole position for the week in terms of positive revisions to price targets, beating Virgin Australia and Western Areas. The negative side looks a lot more benign with Qube Holdings suffering most (-4%), followed by Myer and Seven West Media.

Things look explosive in the table for positive revisions to earnings estimates. Again, Perseus Mining sits on top, enjoying an increase of no less than 72%, then follows Aveo Group (+23%), then Western Areas (+18%). Negative changes for all companies during the week are too small to be mentioned.

The week ahead is likely to be dominated by stocks going ex-dividend and by macro events and developments, which might imply a rather quiet week in terms of any changes made by stockbroking analysts.

Upgrade

CALTEX AUSTRALIA LIMITED ((CTX)) Upgrade to Buy from Neutral by Citi .B/H/S: 3/3/1

The stock has underperformed since its results and Citi suggests, while the earnings outlook is a little uncertain, the disciplined strategy and prudent capital allocation has consistently delivered top quartile returns, historically.

The broker suspects the market is underestimating the medium-term outlook for earnings growth and upgrades to Buy from Neutral. Target is steady at $39.71.

IOOF HOLDINGS LIMITED ((IFL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Since the acquisition of the OnePath business in October the stock has underperformed the ASX 200 by -14%, Macquarie notes. The broker suspects this has been driven by concerns around growth/margins as well as execution risks associated with an acquisition of this scale.

The broker considers the company's track record should outweigh these concerns and suggests investors are being appropriately rewarded on a risk-adjusted basis. Rating is upgraded to Outperform from Neutral. Target is raised to $12.10 from $11.50.

MINERAL DEPOSITS LIMITED ((MDL)) Upgrade to Add from Hold by Morgans .B/H/S: 1/0/0

The good news for Mineral Deposits is the Grande Cote mineral sands operation in Senegal, 90% owned by TiZir, which is 50% owned by Mineral Deposits, ramped up production at a time titanium and zircon prices were firming. The bad news is operational problems at the company's smelter in Norway halted production.

The cost turned out to be greater than Morgans had forecast and hence Mineral Deposits' earnings result was a disappointment. However the smelter has now ramped up to a greater efficiency level than first modelled.

Revised production and cost projections lead the broker to increase its target to $1.51 from $1.18. Upgrade to Add from Hold.

NEWCREST MINING LIMITED ((NCM)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/4/2

Newcrest is expected to produce an update on the Wafi-Golpu Feasibility Study aiming to improve the design and business case shortly. Deutsche Bank analysts have modeled three scenarios, while arguing this will be the key growth denominator for the years to follow.

For now, they have incorporated the middle of the road scenario in their analysis, suggesting 14Mtpa (rather than 6Mtpa or 20Mtpa) will be produced annually once all is done and settled.

This leads to a 4% increase in Net Present Value (NPV) to $20.53, in addition to an upgrade in recommendation to Hold from Sell, based upon valuation.

NUFARM LIMITED ((NUF)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/1

Further analysis suggests to Citi that Nufarm is entering an era of continuous double digit percentage growth, currently calculated as three year CAGR of 11%. The analysts refer to recent acquisitions, which introduce higher margins, as well as the launch of Nufarm's long-awaited Omega-3 canola product.

Earnings estimates have been lifted. Citi suggests the release of interim financials should confirm a strong rebound in profits. There is also an Investor Day scheduled for May. Target increased to $9.50 from $9.07. Upgrade to Buy from Neutral.

REA GROUP LIMITED ((REA)) Upgrade to Buy from Neutral by Citi .B/H/S: 2/5/1

Citi estimates the depth penetration rate for new listings is 63%, forecast to rise to 69% by FY20 and above 80% in the longer term. Listings growth has been strong to date but likely to be affected by the early timing of Easter in March, the broker suspects.

REA Group's pricing encourages agents to move up the product curve and Citi forecasts a 3-year CAGR of 22% for depth revenue. FY18-20 estimates are upgraded 1-3%. Rating is upgraded to Buy from Neutral. Target is raised to $90.00 from $80.20.

TOWER LIMITED ((TWR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 1/0/0

Suncorp ((SUN)) has sold its 19.99% stake in Tower to Bain Capital Credit. With this major overhang removed, and post a review of earnings and forecasts, Credit Suisse upgrades to Outperform from Neutral. Target is raised to $0.90 from $0.65.

VIVA ENERGY REIT ((VVR)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 3/0/0

Ord Minnett found the recent A-REIT reporting season slightly disappointing. Headwinds are hurting retail while office growth was weaker than market conditions might suggest.

On a weighted average basis, the broker lowers sector FY18 earnings estimates by -140 basis points.

The sector has corrected in the year to date and subsequently the broker envisages value in the sector. Viva Energy's recommendation is upgraded to Buy from Accumulate. $2.30 target.

WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Neutral from Sell by Citi .B/H/S: 2/4/2

Having revisited the investment case, and importance, of the Scarborough transaction Citi analysts have come to the conclusion the market is underestimating the Scarborough/Pluto value for Woodside Petroleum.

Citi analysis suggests there could be $5 in added share price value to be unlocked by de-risking Scarborough/Browse and through bringing other gas resource owners into a larger project development.

They have upgraded to Neutral from Sell, while the price target lifts to $28.26 from $25.85.

Downgrade

BANK OF QUEENSLAND LIMITED ((BOQ)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 0/4/3

Ord Minnett has downgraded to Lighten from Hold following a review of the earnings outlook, and given a lack of valuation support.

The broker remains concerned about the margin pressures in mortgages and the digital offering, which is a long way behind peers, will require investment to fix its problems.

Despite recent growth in transaction deposits, the broker is yet to be convinced that the funding disadvantage has been reduced. Target is raised to $11.20 from $11.00.

LEND LEASE CORPORATION LIMITED ((LLC)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/1/0

Ord Minnett notes the share price has recovered from the impact of the $200m impairment charge against the Australian construction business. Hence, the company has outperformed the A-REIT sector by nearly 16 percentage points so far in 2018.

When normalising construction earnings, the broker estimates the company's core earnings comprise around 50% of group profit and the market is valuing these at a multiple of 18x. This valuation differential is material and is expected to constrain Lend Lease's relative performance. As a result, Ord Minnett downgrades to Lighten from Hold. Target is steady at $17.

NATIONAL STORAGE REIT ((NSR)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/1/1

Ord Minnett found the recent A-REIT reporting season slightly disappointing. Headwinds are hurting retail while office growth was weaker than market conditions might suggest.

On a weighted average basis, the broker lowers sector FY18 earnings estimates by -140 basis points.

The broker cuts its recommendation for National Storage to Lighten from Hold. Target is $1.42.

RETAIL FOOD GROUP LIMITED ((RFG)) Downgrade to Sell from Neutral by UBS .B/H/S: 0/0/1

First half results were weaker than expected. The company has flagged the closure of another 160-200 outlets over the next 15 months and suspended dividends. UBS downgrades earnings per share estimates by -50-60% from FY20 onwards, and downgrades the rating to Sell from Neutral.

The company has cited pressure on major shopping centres, particularly the increasing amount of floor space dedicated to competing food offerings. The broker also believes the new banking covenants will be difficult to comply with. Target is reduced to $0.90 from $2.15.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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