Weekly Ratings, Targets, Forecast Changes

This story features INVOCARE LIMITED, and other companies. For more info SHARE ANALYSIS: IVC

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 30 to Friday May 4, 2018
Total Upgrades: 5
Total Downgrades: 10
Net Ratings Breakdown: Buy 45.19%; Hold 40.08%; Sell 14.73%

The direct correlation between share price movements and stockbroker ratings for ASX-listed stocks remained alive and well last week. As share market indices swung higher, the number of stocks receiving downgrades multiplied.

For the week ending Friday, 4th May 2018, FNArena registered ten downgrades and five upgrades. Equally noteworthy: only two up the upgrades moved ratings to Buy, while four of the downgrades moved to Sell.

The two stocks receiving upgrades to Buy during the week are New Hope (coal) and Nine Entertainment (media). Stocks downgraded to Sell are APN Outdoor, ASX Ltd, Regis Resources, and Sandfire Resources. The latter was the only one to receive two downgrades for the week.

Resources companies continue to play a prominent role in the Australian share market's resurgence, as well as in stockbroking analysts making amendments, but the week's overview for positive revisions to valuations/price targets nevertheless has three industrials stocks on top: ResMed, Aristocrat Leisure, and Nine Entertainment.

The negative side only has three names lined up, and all changes are benign, with Link Administration (capital raising) "beating" APN Outdoor and MYOB Group.

The week's table for positive revisions to earnings forecasts is more of a resources affair, with Senex Energy proudly on top, followed by Alacer Gold, Beach Energy, OceanaGold, and Fairfax Media. On the flipside, we find Syrah Resources taking a huge blow, or at least the graphite producer's estimates, followed by Independence Group, Link Administration, National Australia, and InvoCare.

The banking reporting season is proving yet another sad affair with estimates and price targets in general taking another step backwards post results. Share prices have not followed suit, however, as share price weakness had preceded results reports. Macquarie, not a real "bank", once again proved that trading on a sector premium does not mean the shares are "expensive" by any means.

Domestic reporting season continues throughout the remainder of the month, with numerous High PE stocks complementing banks, wealth managers and cyclicals. FNArena's Corporate Results Monitor is keeping track of all releases post February, including a calendar for companies scheduled to report.

Upgrade

INVOCARE LIMITED ((IVC)) Upgrade to Neutral from Sell by UBS .B/H/S: 0/4/2

The broker believes InvoCare's Protect & Grow strategy offer long term opportunities but in the short term, the negative impact of closures is greater than expected. Market share losses, a slow domestic death rate and the temporary closure of Singapore all contributed, UBS notes.

The strategy is a good one but the new growth profile is yet to be proven and will require more capital. The broker is thus cautious but given share price weakness upgrades to Neutral. Target falls to $12.65 from $13.65.

See also IVC downgrade.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/2/1

Credit Suisse raises long-term forecasts to reflect a more efficient allocation of programming resources following the company's capture of the Australian Open tennis rights and the relinquishing of its long-held domestic cricket rights.

The broker increases FY18 TV advertising market growth forecasts to 2.0% from 1.2%.

Rating is upgraded back to Outperform from Neutral as the broker now believes the business remains in an upgrade cycle. Target is raised to $2.60 from $2.35.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Add from Hold by Morgans .B/H/S: 2/1/0

The Queensland Supreme Court has set aside the Land Court decision on Acland stage 3 and referred it back for further consideration. Morgans considers this a significant win for the company in what has been a 10-year approvals process.

Despite this news the broker notes the market ascribes no value to Acland 3, implying a free option on a potential positive outcome for investors. Rating is upgraded to Add from Hold and the target to $2.36 from $2.23.

WOOLWORTHS LIMITED ((WOW)) Upgrade to Hold from Reduce by Morgans .B/H/S: 4/2/2

March quarter sales were slightly better than Morgans expected. Big W was relatively weak, affected by the timing of New Year's Day and the shift of the school holidays in NSW.

Morgans rolls forward its model for FY19 and increases the target to $25.87 from $22.62. Given a forecast 12-month total shareholder return of -4% the broker upgrades the rating to Hold from Reduce. Morgans retains a preference for Wesfarmers ((WES)).

XERO LIMITED ((XRO)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/2/2

UBS has transferred coverage to a new analyst, resulting in an upgrade to Neutral for Xero and a target increase (and currency switch) to A$42.50 from NZ$26.50.

Xero is towards the end of its transition from loss-making start-up to self-funding business, the new analyst notes, and offers a proven business model and significant structural growth opportunities. FY19 has the potential to be an industry-changing year in the UK due to new regulatory requirements.

Downgrade

APN OUTDOOR GROUP LIMITED ((APO)) Downgrade to Sell from Neutral by Citi .B/H/S: 2/2/1

We hadn't noticed anything from Citi on the company since initiating coverage in December last year. Now the broker has used a sector update to pull back its rating to Sell from Neutral.

The analysts remain confident strong growth for the outdoor media space is set to continue, but for APN Outdoor in particular they are concerned about costs and margin compression. As every shareholder knows, these are not the ideal combination.

Target price tumbles to $4.50. Citi prefers oOh!media ((OML)) in the sector. Management at APN Outdoor already admitted it will have to make additional investments to catch up with the competition. The analysts suggest more needs to be done.

ASX LIMITED ((ASX)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/3/5

The March quarter trading update points to a strong FY18 result, although the company does expect fourth quarter expenses will step higher.

Driven by strong results so far this year the stock has reached record levels and Deutsche Bank believes the valuation is stretched. Rating is downgraded to Sell from Hold. Target is $55.90.

GRAINCORP LIMITED ((GNC)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 2/3/0

The outlook for rainfall is signalling low soil moisture entering the 2018 season and any further reduction in rainfall from this point would result in downside to the crop.

Outside of crop conditions, Credit Suisse notes upside rests on the company pursuing a more aggressive restructuring of its storage and logistics business. The broker expects oils and malt will be in focus at the first half result on May 11.

Credit Suisse downgrades to Neutral from Outperform. Target is steady at $9.06.

INVOCARE LIMITED ((IVC)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/4/2

The disruption to the business from the capital expenditure program has been greater than expected and Morgan Stanley reduces forecasts for earnings per share by -6% for 2018-20.

The broker's main concern is that 43% of the volume decline in the March quarter could not be attributed to intentional one-off closures. Market share loss appears to have accelerated, excluding the impact of refurbishing initiatives.

Target is reduced to $12.60 from $15.70. Rating is downgraded to Equal-weight from Overweight. In-Line industry view.

See also IVC upgrade.

NAMOI COTTON CO-OPERATIVE LIMITED ((NAM)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

FY18 results were strong and supported by a large cotton crop, Morgans notes. However, dry conditions and reduced dam levels will likely reduce the size of the 2019 crop. Morgans makes material downgrades to forecasts as a result.

Given the initial outlook for FY20 is challenging, the broker downgrades to Hold from Add. Target is reduced to $0.51 from $0.54.

QANTAS AIRWAYS LIMITED ((QAN)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/2/1

Qantas' March quarter revenue performance beat expectations and management expects momentum to continue into the June Q, albeit at a more moderate pace. UBS has lifted earnings forecasts.

The increase is offset by factoring in higher oil prices, although Qantas' 70% hedge tempers the impact. A greater impact is nevertheless priced into latter years. UBS has lifted its target to $6.50 from $6.35 but with the share price already strong, the broker pulls back to Neutral.

REGIS RESOURCES LIMITED ((RRL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 1/1/4

Ord Minnett struggles to justify the valuation as, despite Regis Resources being a strong dividend-paying gold company, 20% of valuation is attributed to McPhillamys and preliminary environmental assessment submissions have recently been delayed.

The broker downgrades to Lighten from Hold. Target is raised to $4.20 from $4.10.

ST BARBARA LIMITED ((SBM)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 1/3/1

Ord Minnett notes the gold sector continues to re-rate after the March quarter update and downgrades to Hold from Accumulate on valuation.

St Barbara has been one of the broker's preferences but, after a recent strong performance, more details are awaited from the Gwalia GMX project before becoming more positive. Target is raised to $4.50 from $4.30.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Reduce from Hold by Morgans and Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 0/3/4

Gold output was better than Morgans expected in the March quarter, slightly offset by marginally weaker copper production versus forecasts. The company has added 1.3mt to the DeGrussa ore reserve from an upgrade to C5 resources and conversion to reserves of resources within barrier pillars at the extremities of the ore body.

The broker believes the upgrade buys some time for the company, although more is required to alleviate medium-term risk attached to mine depletion.

While the current cash accumulation is impressive, the broker points out the outlook is increasingly reliant on exploration success and development at Black Butte. Rating is downgraded to Reduce from Hold. Target is raised to $7.02 from $6.80.

Sandfire's -5% lower copper production in the quarter beat Deutsche Bank's estimate by 2%. Plant maintenance impacted and the miner was cycling a strong Dec Q but grades improved, the broker notes, and FY guidance is maintained.

Target rises to $8.40 from $8.10 but rating downgraded to Hold on valuation.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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