Weekly Ratings, Targets, Forecast Changes

This story features G.U.D. HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: GUD

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 June 18 to Friday June 22, 2018
Total Upgrades: 4
Total Downgrades: 10
Net Ratings Breakdown: Buy 44.81%; Hold 39.72%; Sell 15.47%

The sudden surge in Australian shares received little sympathy from stockbroking analysts last week, at least not in terms of upgrades and downgrades in ratings for individual ASX-listed stocks.

For the week ending Friday, 22nd June 2018, FNArena counted only four upgrades -of which only two moved to Buy- against ten downgrades. Amongst the latter, only two moved to Sell with Coca-Cola Amatil and Metcash the unlucky recipients.

Macquarie Group and Ramsay Health Care were the sole receivers of an upgrade to Buy for the week, albeit for different reasons. Ramsay had issued a rare profit warning with follow-on consequences for its share price. Macquarie simply keeps on going from strength to even more strength.

Positive changes to consensus price targets were enjoyed by all of GUD Holdings, Macquarie, Lend Lease, and Bapcor. Negative adjustments were few and far between, with Ramsay's target decline (-6%) the largest for the week, followed by embattled Metcash.

A few companies saw analysts increasing forecasts, with OceanaGold commanding top spot for the week, followed by Fletcher Building and Metcash. Alas, the flipside looks a lot nastier, with significant decreases in expectations for Syrah Resources, Lend Lease, Mineral Resources, and Ramsay Health Care.

Maybe just as remarkable is the observation that Telstra doesn't feature in any of the week's tables.

Upgrade

G.U.D. HOLDINGS LIMITED ((GUD)) Upgrade to Neutral from Sell by UBS .B/H/S: 2/3/0

The company recently acquired Disc Brakes Australia and is adding new lines to its automotive division. Feedback from industry appears supportive of the momentum in the automotive business, UBS observes.

The company appears well placed to acquire high-quality aftermarket brands that are not too reliant on sales to either Bapcor ((BAP)) or Repco. Rating is upgraded to Neutral from Sell. Target is raised to $14.60 from $11.75.

LEND LEASE CORPORATION LIMITED ((LLC)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 3/2/0

The company has won a number of major development projects in recent months and Ord Minnett undertakes an in-depth review, focusing on the development earnings to FY24.

The broker upgrades to Hold from Lighten and raises the target to $20 from $17. EPS growth estimates are increased to 8-10% per annum for the next two years. Forecasts capture the next wave of development completions and the main driver is scheduled unit completions in Australia, the US and Europe.

MACQUARIE GROUP LIMITED ((MQG)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/3/0

Morgan Stanley believes Macquarie Group is benefiting from a favourable and diversified business mix. On a five-year outlook the broker is increasingly confident and upgrades to Overweight from Equal-weight.

Morgan Stanley observes the business is geared to the real economy, not just financial markets, and remains a leading alternative asset manager. Initial guidance is also usually conservative, implying upside risk to consensus expectations. Target is raised to $130 from $100.

RAMSAY HEALTH CARE LIMITED ((RHC)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/4/1

Ramsay has revealed weak trading conditions in the Australian and UK markets, downgrading FY18 guidance and taking a $125m impairment charge.

Deutsche Bank believes the next two years will be challenging but likes the operating performance, high returns on equity and appealing valuation versus offshore peers. Hence, the rating is upgraded to Buy from Hold. Target is $63.92.

Downgrade

BELLAMY'S AUSTRALIA LIMITED ((BAL)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

Morgans believes the new arrangement to increase Australian organic milk supply is a smart move and will be well received. It takes up to three years to convert conventional farms to organic so it will take time for this supply to materially increase.

The share price has had a significant pullback from the highs in March and the broker attributes this to delays in receiving CFDA registration for China-labelled infant formula products. This potentially places FY19 forecasts at risk.

For these reasons the broker downgrades to Hold from Add. The main upside risk is a stronger-than-expected FY18 result in August and receipt of CFDA registration sooner than expected. Target is raised to $18.50 from $17.75.

BAPCOR LIMITED ((BAP)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/1/0

UBS observes the share price is up around 25% over the last six months and while positive about the long-term prospects downgrades to Neutral from Buy.

The broker believes the shares are starting to price in a successful roll-out in Asia and a substantial uplift in private-label penetration.

It also could be implying an acquisition of Kmart Tyre & Auto. The latter could be around 6% accretive based on rough estimates, UBS suggests. Target is raised to $7.00 from $6.40.

COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 3/3/1

Ord Minnett has revisited its investment view and notes an absence of strong valuation support. The performance from Indonesia is not improving and the execution risk in the Australian beverages business remains significant.

The broker downgrades to Lighten from Hold. Target of $8.25 is unchanged.

CREDIT CORP GROUP LIMITED ((CCP)) Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

Morgans downgrades to Hold from Add, ahead of the company's expected response to an anonymous sell report. The broker believes the credibility of the sell thesis is low, but secondary and reputation risks have potential to materialise.

The primary basis of the report is that the company is avoiding regulatory scrutiny in its lending division by offering a product which is not classified as a small account credit contract (pay-day) loan under consumer regulation.

Short term weakness is likely, in the broker's opinion, given the potential for negative sentiment. Morgans remains positive on the long-term growth prospects and management of the company. Target is steady at $23.

FLETCHER BUILDING LIMITED ((FBU)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 1/5/0

After the strategy briefing, which confirmed the divestment of Formica and Roof Tile Group, Morgan Stanley believes the outlook rests on the ability to generate improve returns in Australia. The broker considers this a challenge, as the easy gains have been made.

Morgan Stanley no longer envisages sufficient upside to support an Overweight rating and downgrades to Equal-weight. Cautious industry view and $6.60 target maintained.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 1/6/1

Deutsche Bank expects the proceeds from the sale of Asian assets to be returned to shareholders and the capital return may be as large as $520m.

The broker welcomes the return to focus on the Australasian market. With the stock having re-rated from an historic discount to the broader market to a significant premium over the past two years, the rating is now downgraded to Hold from Buy. Target is raised to $8.00 from $7.80.

MIRVAC GROUP ((MGR)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 3/2/2

Credit Suisse downgrades to Neutral from Outperform. Whilst the company has reaffirmed FY18 guidance, a number of external factors point to a deteriorating residential market.

One of these is tougher regulatory scrutiny and a focus on expenses which is leading to tighter lending standards. The broker reduces the target to $2.38 from $2.50.

METCASH LIMITED ((MTS)) Downgrade to Sell from Neutral by Citi .B/H/S: 4/1/2

Industry feedback suggests the risk of another large retailer exiting the Metcash warehouse in 2019 is high, Citi notes, following on from Drakes' departure. Metcash needs to restore positive sale momentum in order to avoid operating deleverage, the broker suggests.

With new management on board, action may well be taken. This suggests the company's capacity for capital returns may well be offset by increased capex, and to that end Citi sees further downside risk to earnings. Downgrade to Sell from Neutral. Target falls to $2.50 from $2.80.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Neutral from Buy by UBS .B/H/S: 3/5/0

The share price has risen around 30% over the last three months outperforming the market by a similar amount. Super Retail now trades at a -38% discount to the ASX 200 industrials ex financials.

A more negative view on housing has caused UBS to downgrade to Neutral from Buy. The main driver of the Buy call was a large negative valuation implied in the share price for leisure which is now considered more balanced. Target is $8.70.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Neutral from Buy by UBS .B/H/S: 4/4/0

As the stock has outperformed since the February result UBS downgrades to Neutral from Buy. The broker also slightly reduces international traffic growth estimates for 2018 to 5.5% from 6.0%. The broker's forecasts also show 103% cash flow coverage of the 37.5c distribution guidance.

UBS raises the target to $7.30 from $7.10. Beyond 2018 the broker envisages a three-year period of stable and predictable growth in cash flow of 8% despite assumptions that international traffic moderates and effective interest rates rise.

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Broker Recommendation Breakup

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