Weekly Ratings, Targets, Forecast Changes

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

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 April 2 to Friday April 6, 2018
Total Upgrades: 9
Total Downgrades: 3
Net Ratings Breakdown: Buy 44.54%; Hold 39.81%; Sell 15.65%

The balance between stockbrokers downgrading and upgrading their recommendations for individual ASX-listed stocks remains overwhelmingly positive, but underneath the surface, where valuations and earnings forecasts are being assessed and recalibrated, the outlook seems more mixed.

For the week ending Friday April 6, 2018, FNArena registered nine upgrades and only three downgrades in stock ratings, with none of the downgrades sinking to Sell. Stocks receiving upgrades to Buy include ANZ Bank, BHP and CSL, while all of G8 Education, GWA Group and ResMed were downgraded once to Neutral.

Funnily enough, the balance between Buy and Neutral ratings remained steady for the week as twelve changes in total amount to six fresh Buy ratings and an equal number of new Neutrals. The gap between total Buys and Neutrals for the eight stockbrokers monitored daily remains substantial at 44.54% and 39.81% respectively.

Perseus Mining is the only stand-out among stocks receiving a boost to their valuation/price target (+14%), with Crown Resorts second for the week at significant distance (+2%). None of the negative revisions comes near Perseus' increase, but the numbers are larger for larger decreases with G8 Education (-6%) at the bottom, followed by Platinum Asset Management, Estia Health and nib Holdings.

It's a similar story for changes to earnings estimates where Newcrest Mining tops the table for positive revision (+4%), followed at a distance by QBE Insurance whose 0.89% increase would normally not be worth mentioning. The negative side of earnings forecasts sees Orocobre suffering most (-4.6%), followed by G8 Education, Navitas and Platinum Asset Management.

Luckily for Australian investors, the negative balance for the week merely affects smaller cap companies while large cap names feature prominently among the rating upgrades. Unfortunately, Trump's negotiation antics with China are currently dominating news headlines, and this is weighing upon short term prospects for equities globally.

Upgrade

AUSTRALIA & NEW ZEALAND BANKING GROUP ((ANZ)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/4/0

The share price has declined around -6% in the year to date and Citi upgrades to Buy from Neutral. The broker believes ANZ, in particular, will be able to shift its dividend pay-out higher, to 80% by the second half of 2020 from the current 65%.

The CET1 ratio is forecast to remain above the 10.5% target despite around $7bn in share buybacks. Target is steady at $30.

AP EAGERS LIMITED ((APE)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/3/0

New car sales growth has improved and regulatory headwinds have been factored into the stock but the valuation holds Morgan Stanley back from being more positive on AP Eagers.

There is upside relative to FY17 on the removal of trading losses at sold dealerships, while the impact from regulatory changes has largely passed.

Rating is upgraded to Equal-weight from Underweight. In-Line industry view. Target is raised to $8.50 from $6.85.

BHP BILLITON LIMITED ((BHP)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/3/0

Citi has upgraded to Buy from Neutral with a higher price target, $33 versus $32 prior, on the realisation the company's shale assets, which are up for divestment, might catch a higher price than previously thought.

On Citi's present calculations, based upon recent transactions inside the US shale industry, BHP's shale assets might attract US$14bn instead of US$10bn, while global upheaval due to rising risks from economic protectionism are believed to be overdone.

CARSALES.COM LIMITED ((CAR)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/5/1

The share price has been under pressure recently, and we can blame Morgan Stanley analysts for scaring investors about potential competition impact that was purely theoretical, and Credit Suisse has now decided it's opportune to raise its recommendation to Neutral from Underperform.

Some minor adjustments have been made to the broker's modeling, but nothing to impact on valuation or price target, which remains unchanged at $13.50.

CSL LIMITED ((CSL)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0

UBS has re-modelled earnings drivers for CSL and transferred lead analyst coverage. The broker shifts to DCF-based valuation methodology. A three-year compound growth rate for earnings per share of 16% is forecast.

The valuation implies a premium to the company's historical average relative to the market but UBS believes current plasma industry conditions are favourable. Rating is upgraded to Buy from Neutral. Target is raised to $175 from $155.

CYBG PLC ((CYB)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/1/1

Macquarie's investment thesis for CYBG is underpinned by expectations of improving profitability through efficiencies, market share gains, capital returns and, eventually, higher interest rates. While some factors will take time and indeed benefit all UK banks, the broker sees CYBG as a greater net beneficiary.

Given an undemanding valuation, Macquarie upgrades to Outperform from Neutral. Target rises to $6.50 from $5.27.

INFIGEN ENERGY ((IFN)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/1/1

Ord Minnett has had a negative outlook on the company's three traditional revenue streams. While situation has not changed that much the broker notes the stock has de-rated such that it would be now at least 10% cheaper to buy Infigen than to build new wind farms.

As the valuation looks significantly more interesting Ord Minnett upgrades to Buy from Hold. Target falls to $0.71 from $0.73.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/1/0

UBS believes the company may have turned the corner and upgrades to Buy from Neutral. Operating consistency is now being achieved at Edikan, Sissingue is being delivered on time and on budget and the outlook is de-risking.

As the company is offering growth through a third development at Yaoure UBS believes the market could eventually re-rate the stock and potentially capture a gold premium. Target is raised to $0.55 from $0.33.

SOUTH32 LIMITED ((S32)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/4/2

South32 has been upgraded to Neutral from Sell, with a reduced price target; $3.40 versus $3.50 prior. Previously, Citi analysts were worried about the direction of manganese prices, but they have now concluded risk is to the upside.

Also, the analysts note cash flow generation remains strong to fund opportunities and the early stage projects that S32 has invested in, keeping potential for ongoing returns to shareholders alive.

Estimates have been slightly reduced, DPS estimate remains on 9c for as far as the eye can see beyond the 14c penciled in for the present fiscal year,

Downgrade

G8 EDUCATION LIMITED ((GEM)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 3/3/0

Morgan Stanley has reduced occupancy forecasts for 2018 to 77.7% from 78.8% and for 2019 to 79.0% from 80.5%. This results in a -4-5% reduction to revenue forecasts.

While the valuation remains undemanding the broker envisages few catalysts in 2018. Rating is downgraded to Equal-weight from Overweight. Target is reduced to $2.80 from $4.25. Industry view is In-Line.

GWA GROUP LIMITED ((GWA)) Downgrade to Hold from Add by Morgans .B/H/S: 1/4/0

Management intends to divest its door & access systems business. Morgans values this business at $45-65m. The company maintains a strong balance sheet which could provide capital management initiatives such as a share buyback or special dividend, in the broker's opinion.

While the broker expects earnings growth to be broadly flat over the next few years the stock offers a 5.2% fully franked yield with upside from capital management initiatives post the sale of this business.

Rating is downgraded to Hold from Add as the share price is now trading above the target price of $3.30.

RESMED INC ((RMD)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/1

The share price has performed well and on Citi's observation this has pushed valuation to a 30% premium versus the five years trading average. Too expensive conclude the analysts and they have pulled back their rating to Neutral from Buy.

In addition, Citi analysts seem a bit worried that new mask launches by competitors Philips Electronics and Fisher & Paykel Healthcare ((FPH)) will tighten competition in the high margin mask sector, which might weigh upon forward growth rates for ResMed. Target untouched at $13.60.

Adding to Citi's concern is the observation ResMed hasn't been able to grow Masks at double digit rates for more than two consecutive quarters since 2012.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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