Weekly Ratings, Targets, Forecast Changes

This story features AGL ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: AGL

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 9 to Friday April 13, 2018
Total Upgrades: 14
Total Downgrades: 1
Net Ratings Breakdown: Buy 45.01%; Hold 39.69%; Sell 15.29%

Last week's stockbroker actions were perfectly summarised by the week's tally of upgrades and downgrades for individual ASX-listed stocks; for the week ending Friday, 13th April 2018, FNArena registered 14 upgrades and only one downgrade.

Clearly, amidst wild gyrations in share prices, and with major indices in Australia in the negative year-to-date, analysts increasingly see value opening up.

Mirvac is the sole recipient of the week's downgrade, to Hold/Neutral, while 50% of the upgrades went to Buy, indicating previously too expensive share prices are becoming less so.

Among the recipients of a fresh Buy rating we find Fortescue Metals and Rio Tinto, but also Charter Hall Long WALE and Genworth Mortgage Insurance Australia.

There were virtually no movements in price targets during the week, indicating upgrades are purely based on share price weakness. Primary Healthcare enjoyed a 3% lift to its consensus target, and stands tall in a short table of minimal adjustments. On the negative side, Fortescue Metals, Brambles and nib Holdings all suffered cuts in excess of -1%, but nothing to break the bank, so to speak.

Gloves and protective wear manufacturer Ansell enjoyed an increase of 10% in expectations, and is the only one worth mentioning from the week's overview for positive adjustments to earnings projections. The flip side has more meat to the bone, and that in itself is something to watch for investors looking to buy into share price weakness.

The week's largest reductions went to Baby Bunting (-5%), Orocobre (-4.6%), Navitas (-2.7%), Mt Gibson Iron (-2.4%) and Star Entertainment (-2.3%). It seems, underlying, the trend in earnings trajectory is negative. The positive, to date, is this trend seems to be more prevalent for smaller cap retailers, industrials and resources companies.

Yet another reason as to why the upcoming bank reports will be an important feature. Expectations for Bank of Queensland, the first cab off the rank, are for a rather weak result on Tuesday this week.

Upgrade

AGL ENERGY LIMITED ((AGL)) Upgrade to Neutral from Sell by Citi .B/H/S: 4/3/0

Citi has analysed the data available on the entry of Alinta to the east coast and the price response observed in incumbent tariffs.

While the broker still believes consensus earnings estimates signal complacency, relative to the risk posed by retail competition, the share prices imply compensation is already adequate in terms of retail margin compression.

Hence, the broker upgrades to Neutral from Sell. Target is raised to $21.28 from $20.54.

AMCOR LIMITED ((AMC)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 3/4/0

The company has faced a number of cyclical pressures in the past 12-18 months but Morgan Stanley believes there are early signs this is easing. The broker believes the company is now better equipped to deal with cost inflation.

Despite a growth profile that is consistent with the industrials, ex-financials, the stock is trading at an -18% discount. Morgan Stanley upgrades to Equal-weight from Underweight. Target is raised to $14.80 from $14.40. Cautious industry view.

CHARTER HALL LONG WALE REIT ((CLW)) Upgrade to Buy from Neutral by UBS .B/H/S: 2/0/1

UBS has upgraded the REIT to Buy from Neutral based on valuation, asset mix and earnings upgrades. CLW trades at a 7% yield with 3% compound growth rate, as well as a -2% discount to net tangible assets and a -6% discount to the broker's valuation.

CLW has no exposure to retail, rather office, industrial, pubs and Bunnings make up the portfolio. Valuation is at risk from rising interest rates, the broker concedes, but for now Buy with an unchanged $4.25 target.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 5/1/1

Ord Minnett believes the share price is back in value territory now that the benchmark iron ore price, with which the stock is most correlated, has fallen around -20% over a month.

While there remain concerns about persistently high discounts for low-grade iron ore the absolute price of US$40/t still provides the company with an operating earnings margin of nearly 40%.

Ord Minnett upgrades to Accumulate from Hold. The target is lowered to $5.00 from $5.60 to reflect wider discounts for lower-grade ore.

GENWORTH MORTGAGE INSURANCE AUSTRALIA LIMITED ((GMA)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/1/0

UBS remains cautious about a gradual housing market correction but believes operating challenges that were posed by the decline in net earned premium have now played out and are widely appreciated. The broker now regards a Sell thesis as less compelling and upgrades to Neutral.

UBS acknowledges that sentiment could push the stock's value well below fundamentals if key housing data deteriorates. The surplus capital remains a positive and the broker renews expectations of capital returns. Target is reduced to $2.30 from $2.50.

GPT ((GPT)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/2/1

Ord Minnett observes retail property is undergoing an accelerated level of change caused by technology disruption. Not all assets are affected equally. Therefore, asset quality has never been more important, in the broker's opinion.

Hence the broker upgrades GPT to Accumulate from Hold. The company has a concentrated high-quality portfolio with a solid growth outlook. Other than via redevelopments, the portfolio is unlikely to change materially. Target is $5.35.

INFIGEN ENERGY ((IFN)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/0/1

The emergence of Brookfield on the company's register should be viewed positively, Macquarie suggests. Brookfield has filed a substantial holding notice and now has a 9% voting interest. The name is well known among infrastructure investors.

The broker now considers the risks are weighted to the upside, upgrading the stock to Outperform from Neutral. Target is increased to $0.78 from $0.67.

ORIGIN ENERGY LIMITED ((ORG)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/3/0

Citi has analysed the data available on the entry of Alinta to the east coast and the price response observed in incumbent tariffs.

While the broker still believes consensus earnings estimates signal complacency, relative to the risk posed by retail competition, the share prices imply compensation is already adequate in terms of retail margin compression.

Hence, the broker upgrades to Buy from Neutral. Target is raised to $10.06 from $9.61.

PRIMARY HEALTH CARE LIMITED ((PRY)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/1/4

Ord Minnett believes the company offers good exposure to domestic diagnostics, an increasingly attractive segment. The medical centre division receives most investor attention but only accounts for 17% of group earnings and its anticipated recovery is considered still a year away.

However, the broker expects double-digit earnings growth in FY19 and FY20, supported mainly by the diagnostics division. Ord Minnett upgrades to Accumulate from Hold and raises the target to $4.30 from $3.50.

RIO TINTO LIMITED ((RIO)) Upgrade to Add from Hold by Morgans .B/H/S: 7/1/0

Recent share price weakness, combined with a lift in earnings, has triggered an upgrade to Add from Hold. Morgans, whilst envisaging value on offer at current levels, retains lingering concerns around the future direction of the company after the exit from coal, and amid its interest in entering new markets such as lithium.

The broker also notes that US sanctions banning Americans from dealing with certain Russian entities could result in further tightness in the global aluminium market. Target is raised to $81.51 from $74.75.

SOUTH32 LIMITED ((S32)) Upgrade to Hold from Reduce by Morgans .B/H/S: 1/5/1

Morgans upgrades to Hold from Reduce following upgrades to aluminium price forecasts and recent share price weakness.

The broker is pricing in a more structural uplift in aluminium fundamentals as China reforms its industry, which has meant a moderation of strong supply growth.

Moreover, US sanctions levelled at Russian aluminium producer Rusal could result in further supply tightness. Target is raised to $3.72 from $2.97.

SIMS METAL MANAGEMENT LIMITED ((SGM)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/2

Ord Minnett believes the recent multiple de-rating presents a buying opportunity. Macro indicators remain positive, such as US housing starts and industrial production, while Turkish scrap imports are trending higher and Chinese steel exports are still expected to fall.

The stock is trading below the broker's valuation and the rating is upgraded to Accumulate from Hold. Target is raised to $17.20 from $17.00.

SMARTGROUP CORPORATION LTD ((SIQ)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/1/0

Ord Minnett likes the outlook for the stock, with a combination of organic and acquired growth. The broker is attracted to the business model as it takes no residual vehicle risk, which results in strong cash conversion.

On the back of a pullback in the share price the broker upgrades to Buy from Accumulate and raises the target to $11.55 from $11.40. Acquisitions from 2017 are poised to deliver an additional $15m in EBITDA in 2018, based on the broker's estimates.

WISETECH GLOBAL LIMITED ((WTC)) Upgrade to Neutral from Sell by Citi .B/H/S: 1/2/1

Citi had earlier downgraded to Sell as the share price had rallied well ahead of intrinsic valuation. Now that the share price has fallen back to earth, the analysts have upgraded to Neutral. Target price $9.51 (up from $9.02).

The analysts remain of the view the company's medium term outlook remains positive due to robust industry as well as company specific drivers. Equally interesting, WiseTech will organise its first ever Investor Day on 4th May.

Downgrade

MIRVAC GROUP ((MGR)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 3/3/1

Ord Minnett observes retail property is undergoing an accelerated level of change caused by technology disruption. Not all assets are affected equally. Therefore, asset quality has never been more important, in the broker's opinion.

The broker downgrades to Hold from Buy on valuation grounds as Mirvac is in the unique position of having had very strong specialty sales growth over the past three years. This should ensure positive re-leasing spreads and sector-leading income growth in the low to mid 3% range. Target is $2.55

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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