Weekly Ratings, Targets, Forecast Changes

This story features AURIZON HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: AZJ

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 12 to Friday March 16, 2018
Total Upgrades: 10
Total Downgrades: 4
Net Ratings Breakdown: Buy 43.59%; Hold 41.16%; Sell 15.25%

A hesitant local share market continues to find support from stockbroking analysts who issued ten upgrades and only four downgrades for ASX-listed entities during the week ending Friday, 16th march 2018. Further enlarging the direct support for share prices, eight of the ten upgrades lifted the rating to en equivalent of Buy. On the flipside: three of the four downgrades sank ratings to Sell.

All three receivers of a Sell rating are resources stocks: Newcrest Mining, OZ Minerals, and Sandfire Resources. Among the receivers of a Buy rating we find Wesfarmers, on the news of spinning off Coles and becoming a higher growth conglomerate again, James Hardie, Sydney Airport, South32 and Regis Resources.

Changes to price targets and valuations remained rather mute, given the February reporting season already has inflicted major amendments to forecasts. This leads to WiseTech Global commanding pole position for the week with a net gain of no more than 2.4%. The negative side has Charter Hall and Newcrest Mining suffering a blow in excess of -4% each.

The table for positive revisions to earnings forecasts has energy producer under corporate interest, AWE ltd, on top with a 11% gain, but then things go quieter quite quickly; OZ Minerals' forecasts gained 2.8%, for OceanaGold the impact is no more than 1.6%. The week's numbers are larger on the negative side where Newcrest Mining, plagued by yet another operational hiccup, has taken a blow in excess of -17%, followed by Japara Healthcare suffering -7.7% and WiseTech Global's prospects losing -2%.

All in all, it appears underlying profit growth forecasts are trending lower, but it's happening at avalanche speed. And the balance in ratings upgrades and downgrades suggests there's still value to be found. This week sees a series of out-of-season corporate results being released with Premier Investments' update on Friday well received.

Upgrade

AURIZON HOLDINGS LIMITED ((AZJ)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/3/2

Credit Suisse upgrades FY18 estimates for earnings by 3% because of cost reductions in the network. The broker suspects the network is likely to surprise to the upside in 2018.

Given recent weakness, the rating is upgraded to Outperform from Neutral. Target is raised to $4.85 from $4.75.

BANK OF QUEENSLAND LIMITED ((BOQ)) Upgrade to Add from Hold by Morgans .B/H/S: 1/3/3

Morgans expects the strong capital position and surplus franking credits will result in special dividends. The broker also believes the bank's interim CET1 ratio target of 9.25% will prove too conservative. This creates potential for capital management initiatives in addition to the forecast for special dividends.

Rating is upgraded to Add from Hold. The broker reduces cash earnings forecasts by -2.0% for FY18 and -4.0% for FY19. A discounted dividend reinvestment plan is now expected to operate over the forecast period. Net interest margin forecasts have also been lowered. Target is $12.00.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/1

Capitol Health ((CAJ)) will not be increasing or extending the takeover bid for Integral Diagnostics and the offer is now expected to lapse. The outcome was increasingly apparent to Ord Minnett given an acrimonious relationship between the companies and some key shareholders.

The broker considers each business positively on a standalone basis. Both are trading at discounts to health care peers, which Ord Minnett considers unjustified given the avenues to growth. Rating is upgraded to Buy from Hold and the target is $2.39.

JAMES HARDIE INDUSTRIES N.V. ((JHX)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/1/0

Credit Suisse is more confident in the outlook after reports from the company's customers confirm that US housing and renovation activity is robust. US home builders have reported revenues that are slightly above consensus forecasts amid growing order books.

In the retail channel both Home Depot and Lowes have beat sales estimates. Credit Suisse forecasts FY18 net profit of US$280m. Rating is upgraded to Outperform from Neutral. Target is $24.75.

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

Management remains cautious on the FY19 outlook although Credit Suisse expects a win of at least one of the three large iron ore contracts up for grabs in Western Australia in the first half of that year. A revenue benefit is unlikely until the second half.

Because of the weakness in the shares the broker upgrades to Neutral from Underperform. Target is steady at $15.10.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/3

The company has delivered a maiden inferred underground resource estimate for Rosemont of 1.4mt at 5.1g/t for 230,000 ozs, using a 2.0g/t cut-off grade. This may be only an inferred resource but Macquarie suggests it highlights the options the company has in the Duketon portfolio to extend mine life.

Grades at Rosemont Main are particularly encouraging. Macquarie raises the target to $5.00 from $4.60. Rating is upgraded to Outperform from Neutral. The addition of the underground resources in FY20 means estimates for earnings per share lift 26% in that year.

SOUTH32 LIMITED ((S32)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/3/4

Credit Suisse has increased its price expectations for aluminium, up 7-22% for the period to 2021. Copper forecasts for 2018 have also been upgraded by 17%. Metallurgical coal estimates are up 12% for 2018.

Given the pull back in the shares since January, South32's valuation appears more compelling and the broker upgrades to Neutral from Underperform. Target is steady at $3.30. Operating performance and corporate activity could also likely be key near-term value drivers.

SOUTHERN CROSS MEDIA GROUP ((SXL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/1/2

The stock has sold off since the February result and improved operating momentum in metro radio and regional TV does not appear to be priced in at current levels.

Macquarie suggests, while one rating survey does not guarantee a successful year, if sustained it represents upside risk to forecasts. Rating is upgraded to Outperform from Neutral. Target is $1.18.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0

Macquarie has reconsidered the outlook for Sydney Airport, expecting management will maintain growth at least until the Western Sydney Airport opens.

The broker upgrades to Outperform from Neutral and raises the target to $6.85 from $6.40. Macquarie considers the stock undervalued versus Auckland International Airport ((AIA)) despite a stronger 2018 international passenger growth outlook.

WESFARMERS LIMITED ((WES)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/5/1

Credit Suisse makes a relative value call based on upgrade to valuation of Bunnings Australasia and on the probability that the underperformance of Bunnings UK and Ireland will be dealt with in the next six months.

On this basis the broker upgrades to Outperform from Neutral and raises the target to $44.98 from $40.65. The broker also believes the market has become too negative on Coles.

Downgrade

INGHAMS GROUP LIMITED ((ING)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/3/0

The stock has outperformed the market by around 12% over the last month, UBS observes. While believing a long-term opportunity exists, the broker downgrades to Neutral from Buy on valuation grounds.

Recent industry feedback suggests pressure in the frozen poultry category share and a re-basing of industry volumes. Cost reductions will help offset these pressures, UBS acknowledges, but risks in the short term are on the downside. Target is $3.70.

NEWCREST MINING LIMITED ((NCM)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 2/3/3

The wall of the tailings dam at Cadia failed last Friday in the wake of minor earthquakes recorded in the area. Newcrest has suspended production at the mine which accounts for around 60% of group earnings. Macquarie is factoring in a six week shutdown but it could be less or more.

The failure is a major concern to Macquarie. Given the production issues arising from an earthquake in April last year, the market will likely discount valuation until some certainty in the outlook can be established. Downgrade to Underperform from Neutral.

Target falls to $19 from $23.

OZ MINERALS LIMITED ((OZL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 2/4/1

Credit Suisse has increased copper price assumptions, raising the 2018 estimate to US$3.09/lb and the first half 2019 estimate to US$2.60/lb. Despite increased earnings and valuation the broker still considers OZ Minerals expensive.

Rating is downgraded to Underperform from Neutral. Target is raised to $8.55 from $8.25.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/3/2

Credit Suisse has increased copper price assumptions, raising the 2018 estimate to US$3.09/lb and the first half 2019 estimate to US$2.60/lb. Despite increased earnings and valuation the broker still considers Sandfire Resources expensive.

Rating is downgraded to Underperform from Neutral. Target is raised to $6.10 from $5.60.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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