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Weekly Ratings, Targets, Forecast Changes

Weekly Reports | May 28 2018

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

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 May 21 to Friday May 25, 2018
Total Upgrades: 7
Total Downgrades: 7
Net Ratings Breakdown: Buy 45.20%; Hold 39.89%; Sell 14.91%

Local plumbers' favourite Reliance Worldwide made a big acquisition in the UK, in what could prove a transformative event in the company's development, and two stockbroking analysts responded by upgrading their ratings for the shares. This proved sufficient to keep upgrades and downgrades in perfect balance for the week ending Friday, 25th May 2018.

FNArena counted seven upgrades and downgrades for the week from the eight stockbrokerages monitored daily. Among the stocks receiving downgrades were OZForex and TechnologyOne; both had reported financial numbers.

There were only a handful of consensus price targets that moved higher during the week, but those that did were worth paying attention to. Perennial outperformer Aristocrat enjoyed yet another boost of nearly 16% -good for top spot for the week- followed by Reliance Worldwide, Metcash and Treasury Wines.

On the negative side, AMP's target suffered most (-3%), followed by Boral and Link Administration. Telstra is in there too, but only with a minor downward adjustment of -0.38%. A sign?

Aristocrat was beaten by James Hardie for the week's top ranking in positive adjustments to earnings estimates. Fletcher Building and CSL enjoyed some sizeable upward amendments too. The flipside looks equally meaty, with Ansell's consensus forecasts losing most (-8.7%), followed by Healthscope (another profit warning) and Asaleo Care.

The local out-of-season reporting season draws to an end, but there could still be plenty of fireworks coming from AGMs and investor days, while confession season has thrown up a few profit warnings yet, albeit mostly from already troubled smaller cap companies.

Upgrade

ARISTOCRAT LEISURE LIMITED ((ALL)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 7/1/0

Credit Suisse' response to Aristocrat's result is to increase forecast earnings by 13%, increase its target to $35 from $28, and upgrade its rating to Outperform. The standout performance was posted by digital.

The broker sees the potential for the company to scope out a much bigger position in the US mobile games industry from a current 2% market share. Even if this is not the case, strong cash flow will rapidly reduce debt. If it is the case, digital earnings should prove more sustainable than those of machines, for which market share shifts over time, the broker notes.

AMP LIMITED ((AMP)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/3/1

Morgan Stanley believes AMP offers deep value and a potential path to rebuilding its brand. Elevated uncertainty, fear and speculation around the future of the company's business model appear overdone to the broker.

Morgan Stanley believes the company's resilience will likely surprise and upgrades to Overweight from Equal-weight. Target is reduced to $4.50 from $5.75. Industry view: In line.

FLETCHER BUILDING LIMITED ((FBU)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 2/4/0

The company has completed its NZ$750m entitlement offer which Macquarie believes will provide a firm of platform on which to execute its strategic objectives. The broker believes the company's move to consolidate its product and geographic spread will be well received.

More about this strategy will be learned in June. Macquarie upgrades to Neutral from Underperform. Target is raised to NZ$6.54 from NZ$5.30.

METCASH LIMITED ((MTS)) Upgrade to Accumulate from Lighten by Ord Minnett .B/H/S: 3/3/1

Ord Minnett reviews the investment thesis and recognises it may have been too hasty in downgrading Metcash. Estimates for EPS are raised by 2.7% for FY19 and 7.4% for FY20 because of forecasts for higher sales and margin in food & grocery and stronger hardware earnings.

The broker is more confident that food deflation is easing while the independent retailer network appears in better shape. Rating is upgraded to Accumulate from Lighten. Target rises to $3.75 from $2.65.

RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Upgrade to Add from Hold by Morgans and Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/1/0

The company will acquire John Guest for GBP687.5m. Morgans believes the acquisition makes strategic sense, providing product, geographic and customer diversification. John Guest is headquartered in the UK and has a strong European distribution platform with operations in the US and Asia Pacific.

The acquisition is expected to complement the company's existing portfolio. If management can execute well then there are multiple long-term growth opportunities, Morgans suggests. The broker upgrades to Add from Hold and the target is raised to $5.46 from $4.33.

The company will acquire John Guest, a UK manufacturer of fittings for plumbing, heating and industrial applications. The acquisition make strategic sense to Deutsche Bank, given John Guest's strong PTC offering in Europe.

However, as a word of caution, the acquisition adds further risk to a business that has many strategies, the broker points out. Rating is upgraded to Hold from Sell. Target is raised to $4.35 from $3.90.

TELSTRA CORPORATION LIMITED ((TLS)) Upgrade to Buy from Neutral by UBS .B/H/S: 4/2/2

UBS continues to believe the $0.22 dividend is unsustainable and a reduction from as early as FY20 is likely. However, with the downside largely known and the full 5G/NBN upside being factored in by the market the broker upgrades to Buy from Neutral.

In the short term the June strategy day could be a positive, as the company has flagged that it will show how its $3bn strategic capital expenditure and cost reduction program will allow it to be more "bold".

UBS speculates on an NBN bypass and an aggressive push on market share. Target is raised to $3.00 from $2.80.

Downgrade

ASALEO CARE LIMITED ((AHY)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/1/2

Credit Suisse observes the share price has rallied and presents an opportunity to take some profits. The broker downgrades 2018-20 estimates for EPS by -3-16% because of persistent increases in pulp and fluff costs.

Critical to the broker's estimates is the assumption that sales growth will continue beyond 2018, as management is taking action to rejuvenate tissue sales. The company has reported declining sales for the past three years.

Rating is downgraded to Underperform from Neutral. Target is reduced to $1.30 from $1.35.

AIR NEW ZEALAND LIMITED ((AIZ)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 1/1/2

Credit Suisse downgrades to Underperform from Neutral as oil prices have risen, coinciding with a strengthening of the US dollar against the New Zealand dollar.

Taking into account current hedging, the broker expects limited impact on FY18 earnings but the persistent increase in oil suggests negative revisions for FY19.

Neutral maintained. Target is reduced to NZ$2.98 from NZ$3.00.

BORAL LIMITED ((BLD)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 4/1/1

Credit Suisse suspects fly ash earnings will be disappointing. While the US fly ash business has many attributes of a great investment, the broker believes  industry success at redirecting easily available supply to high-value applications is approaching a limit.

The broker also points out that the company was unable to grow its fly ash revenue in the last decade and targeted storage and reclamation efforts by Headwaters were not met in the ownership transition.

Credit Suisse suggests growth expectations for North America are too high and downgrades to Underperform from Neutral. Target is reduced to $6.40 from $7.45.

OZFOREX GROUP LIMITED ((OFX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/2/0

FY18 net profit was in line with expectations. The company has noted a more competitive operating environment and lower levels of currency volatility.

Macquarie was disappointed with the active client growth in FY18 and believes client acquisition and overall activity levels are necessary to support an improved outlook for profitability and earnings growth.

The broker downgrades to Neutral from Outperform. Target is raised to $1.83 from $1.71.

PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 0/1/0

The company has outperformed recently and, while Ord Minnett understands newly-formed boutiques are performing well, current pricing appears to be offering little margin of safety.

The broker upgrades assumed funds under management for Firetrail but pairs back those for most other boutiques following a soft investment performance in the third quarter. While remaining positive on the stock Ord Minnett considers the price full and downgrades to Hold from Buy. Target price reduced to $5.19 from $5.31.

SANTOS LIMITED ((STO)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/2/2

Now that Santos has rejected Harbour Energy's higher offer, Citi analysts suggest the company narrative will shift towards growth in the coming months. They also point out, the fact that Harbour Energy said it wasn't impressed from the due diligence "complicates" things just a tad more.

As Citi has reverted back to a Sum-of-the-Parts (SoTP) methodology to value the shares, including long-term oil priced at US$55/bbl, the rating falls to Sell from Neutral. New price target is $5.30.

TECHNOLOGY ONE LIMITED ((TNE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 0/3/0

FY18 guidance is below Macquarie's expectation and implies flat growth year-on-year. The broker notes issues in the consulting division have carried through into FY18 and the UK business is taking longer to reach a profitable scale.

The broker believes a turnaround in consulting, acceleration of the SaaS platform and clarity around upcoming accounting changes are needed for the stock to re-rate. Rating is downgraded to Neutral from Outperform. Target is $4.77.

Total Recommendations
Recommendation Changes

Broker Recommendation Breakup

Broker Rating

 

Order Company New Rating Old Rating Broker
Upgrade
1 AMP LIMITED Buy Neutral Morgan Stanley
2 ARISTOCRAT LEISURE LIMITED Buy Neutral Credit Suisse
3 FLETCHER BUILDING LIMITED Neutral N/A Macquarie
4 METCASH LIMITED Buy Sell Ord Minnett
5 RELIANCE WORLDWIDE CORPORATION LIMITED Buy Neutral Morgans
6 RELIANCE WORLDWIDE CORPORATION LIMITED Neutral Sell Deutsche Bank
7 TELSTRA CORPORATION LIMITED Buy Neutral UBS
Downgrade
8 AIR NEW ZEALAND LIMITED Sell Neutral Credit Suisse
9 ASALEO CARE LIMITED Sell Neutral Credit Suisse
10 BORAL LIMITED Sell Neutral Credit Suisse
11 OZFOREX GROUP LIMITED Neutral Buy Macquarie
12 PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED Neutral Buy Ord Minnett
13 SANTOS LIMITED Sell Neutral Citi
14 TECHNOLOGY ONE LIMITED Neutral Buy Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 50.0% 13.0% 37.0% 3
2 GOZ GROWTHPOINT PROPERTIES AUSTRALIA -67.0% -100.0% 33.0% 3
3 TWE TREASURY WINE ESTATES LIMITED 21.0% 7.0% 14.0% 7
4 LNK LINK ADMINISTRATION HOLDINGS LIMITED 57.0% 43.0% 14.0% 7
5 MTS METCASH LIMITED 21.0% 7.0% 14.0% 7
6 ALL ARISTOCRAT LEISURE LIMITED 81.0% 69.0% 12.0% 8
7 TLS TELSTRA CORPORATION LIMITED 25.0% 13.0% 12.0% 8
8 AMP AMP LIMITED 31.0% 19.0% 12.0% 8
9 SVW SEVEN GROUP HOLDINGS LIMITED 90.0% 80.0% 10.0% 5

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AHY ASALEO CARE LIMITED -67.0% -33.0% -34.0% 3
2 BLD BORAL LIMITED 42.0% 58.0% -16.0% 6
3 FBU FLETCHER BUILDING LIMITED 33.0% 40.0% -7.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 ALL ARISTOCRAT LEISURE LIMITED 34.159 29.458 15.96% 8
2 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 4.870 4.533 7.43% 3
3 MTS METCASH LIMITED 3.279 3.121 5.06% 7
4 TWE TREASURY WINE ESTATES LIMITED 17.126 16.626 3.01% 7
5 GOZ GROWTHPOINT PROPERTIES AUSTRALIA 3.153 3.130 0.73% 3

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 AMP AMP LIMITED 4.369 4.525 -3.45% 8
2 BLD BORAL LIMITED 7.605 7.780 -2.25% 6
3 LNK LINK ADMINISTRATION HOLDINGS LIMITED 7.971 8.081 -1.36% 7
4 AHY ASALEO CARE LIMITED 1.333 1.350 -1.26% 3
5 TLS TELSTRA CORPORATION LIMITED 3.380 3.393 -0.38% 8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 JHX JAMES HARDIE INDUSTRIES N.V. 97.759 81.717 19.63% 6
2 ALL ARISTOCRAT LEISURE LIMITED 116.457 107.157 8.68% 8
3 FBU FLETCHER BUILDING LIMITED -6.176 -6.624 6.76% 6
4 CSL CSL LIMITED 490.273 465.930 5.22% 8
5 RWC RELIANCE WORLDWIDE CORPORATION LIMITED 16.150 15.825 2.05% 3
6 BLD BORAL LIMITED 41.188 40.603 1.44% 6
7 DLX DULUXGROUP LIMITED 38.350 37.806 1.44% 7
8 MPL MEDIBANK PRIVATE LIMITED 16.314 16.243 0.44% 7
9 TWE TREASURY WINE ESTATES LIMITED 48.983 48.840 0.29% 7
10 COH COCHLEAR LIMITED 433.000 431.857 0.26% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ANN ANSELL LIMITED 127.588 139.770 -8.72% 6
2 HSO HEALTHSCOPE LIMITED 8.950 9.690 -7.64% 7
3 AHY ASALEO CARE LIMITED 9.130 9.660 -5.49% 3
4 OZL OZ MINERALS LIMITED 73.200 75.629 -3.21% 6
5 AMP AMP LIMITED 32.229 32.514 -0.88% 8
6 NHF NIB HOLDINGS LIMITED 29.013 29.225 -0.73% 8
7 SCG SCENTRE GROUP 24.629 24.771 -0.57% 7
8 CTD CORPORATE TRAVEL MANAGEMENT LIMITED 80.580 80.980 -0.49% 5
9 GOZ GROWTHPOINT PROPERTIES AUSTRALIA 23.167 23.250 -0.36% 3
10 ECX ECLIPX GROUP LIMITED 27.425 27.500 -0.27% 5

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CHARTS

AIZ ALL AMP BLD FBU MTS OFX PNI RWC STO TLS TNE

For more info SHARE ANALYSIS: AIZ - AIR NEW ZEALAND LIMITED

For more info SHARE ANALYSIS: ALL - ARISTOCRAT LEISURE LIMITED

For more info SHARE ANALYSIS: AMP - AMP LIMITED

For more info SHARE ANALYSIS: BLD - BORAL LIMITED

For more info SHARE ANALYSIS: FBU - FLETCHER BUILDING LIMITED

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: OFX - OFX GROUP LIMITED

For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED

For more info SHARE ANALYSIS: STO - SANTOS LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED