Weekly Reports | Jul 30 2018
This story features MAYNE PHARMA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MYX
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 July 23 to Friday July 27, 2018
Total Upgrades: 6
Total Downgrades: 11
Net Ratings Breakdown: Buy 44.99%; Hold 39.46%; Sell 15.55%
For the week ending Friday, 27th July 2018 FNArena registered six upgrades for ASX-listed stocks from the eight stockbrokers we monitor daily, but also eleven downgrades.
Four of the six upgrades moved to Buy with long time suffering shareholders in iSentia finally receiving a boost of hope, while the same can be said about those still holding on to shares in Mayne Pharma.
Newcrest Mining and Pinnacle Investment Management are the two remaining "lucky" ones for the week.
When it comes to downgrades, Scentre Group was the sole receiver of two downgrades during the week. Of the eleven downgrades issued, five moved to Sell. A-REITs and other "defensives", including Charter Hall and Woolworths, are prominently represented among the week's eleven downgrades.
Positive revisions to target prices remain the territory of resources stocks with Iluka Resources commanding top spot for the week, followed by Northern Star, Cimic and OZ Minerals.
Negative revisions to price target for the week are hardly worth mentioning considering Fortescue Metals sits on top of the negative ladder with an adjustment of -1.30% only.
There are a lot more fireworks to admire in the table for positive revisions to earnings estimates, which should not surprise with resources stocks enjoying positive momentum. Alacer Gold, Galaxy Resources and Iluka Resources all enjoyed increases of 14.90% and beyond.
As is typical for the sector, there are equally large adjustments to the downside with Western Areas suffering the biggest blow for the week, -34.9%, followed by Nufarm, Pilbara Metals, Fortescue Metals and James Hardie.
Earnings reporting season is slowly ramping up this week. See FNArena's calendar on the website. For specific company reporting dates, investors can visit the dedicated Corporate Earnings Monitor.
Upgrade
ISENTIA GROUP LIMITED ((ISD)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/1/1
UBS argues that a significant level of earnings downside is now factored into the share price. The broker envisages FY19 as a potential year of transformation.
Analysis suggests upside for valuation and earnings growth and, if not, the stock then becomes a cash-flow yield play on declining earnings. Rating is upgraded to Buy from Neutral. Target is reduced to $1.00 from $1.05.
MAYNE PHARMA GROUP LIMITED ((MYX)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 2/0/0
Credit Suisse assesses the market for two new drugs the company intends to launch in FY19 and does not believe the current share price adequately reflects the intrinsic value of these drugs.
The broker considers the stock undervalued and upgrades to Outperform from Neutral. Target is increased to $1.00 from $0.74 and further weakness in the upcoming results is considered a buying opportunity.
NEWCREST MINING LIMITED ((NCM)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/3/2
Deutsche Bank notes June quarter production was supported by a strong performance of the core assets. Lihir lifted mill throughput to a record 4mt while Cadia and Telfer lifted production by around 6% quarter on quarter.
Deutsche Bank expects the company can lift production in FY19 by 4% and at the same time reduce AISC by -22%. Rating is upgraded to Buy from Hold on valuation. Target is steady at $23.50.
NIB HOLDINGS LIMITED ((NHF)) Upgrade to Equal-weight from Underweight by Morgan Stanley .B/H/S: 1/6/1
Morgan Stanley has used a sector preview to upgrade to Equal-weight from Underweight, with reference to the fact the shares have fallen -17% year-to-date. Estimates have risen. Price target gains 20c to $5.30.
PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED ((PNI)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/0/0
The company has invested in Metrics Credit Partners and Omega Global Investors for a combined $48m. Pinnacle has provided third-party distribution assistance to Metrics Credit since 2013. Ord Minnett suggests this relationship mitigates some of the usual investment risks.
Affiliate funds under management finished FY18 better than expected and this provides some momentum in FY19 to supplement the accretion from these investments. Ord Minnett upgrades to Buy from Hold. Target is raised to $6.43 from $5.19.
WESTERN AREAS NL ((WSA)) Upgrade to Neutral from Sell by Citi .B/H/S: 3/3/1
Previously Citi's house forecast was for weaker nickel prices ahead, which underpinned its Sell rating for Western Areas. As the house view has now shifted towards "a more constructive view" on nickel (their words) the rating has moved to Neutral. Target price lifts to $3.20 from $2.60.
Downgrade
COCA-COLA AMATIL LIMITED ((CCL)) Downgrade to Underperform from Outperform by Macquarie .B/H/S: 1/4/2
Macquarie downgrades to Underperform from Outperform, following recent strength in the share price. The broker believes Australian beverages remain susceptible to a number of headwinds and more money is expected to be spent in order for volumes to remain static.
Ongoing weakness in Indonesia is also likely to affect near-term earnings. Target is reduced to $8.87 from $9.26. The company will report its result on August 22.
CHARTER HALL RETAIL REIT ((CQR)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/2
Citi analysts don't think recent share price rallies for some of the retail AREITs can be justified, hence the downgrade to Sell from Neutral. The analysts remain more bullish on AREITs with office, industrial and funds management exposure. Target falls to $3.76 from $3.87.
The analysts acknowledge theirs are not consensus calls and therefore likely to trigger debate among investors and among peers. Among factors noted to worry about are ongoing structural headwinds, above average multiples and the potential for falling house prices to weigh on tenant sales.
FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Neutral from Buy by Citi .B/H/S: 6/1/0
June quarter shipments were in line with expectations. Realised prices of US$38/t were 58% against the index and brought FY18 realisation to 64%. Cit expects free cash generation of US$500m in FY19, falling to roughly break even in FY20 because of increased expenditure on Eliwana.
Rating is downgraded to Neutral from Buy. Target is reduced to $4.70 from $4.90.
SCENTRE GROUP ((SCG)) Downgrade to Neutral from Outperform by Macquarie and Downgrade to Sell from Neutral by Citi .B/H/S: 3/2/2
Macquarie expects 2018 guidance to be reaffirmed at the first half results, factoring in organic growth, a lower cost of debt and development completions.
The stock remains the highest quality retail offering in Australia which should mean it is better shielded from structural headwinds, the broker suggests.
Macquarie downgrades to Neutral from Outperform, given the recent rally. Target is $4.46.
Citi analysts don't think recent share price rallies for some of the retail AREITs can be justified, hence the downgrade to Sell from Neutral. The analysts remain more bullish on AREITs with office, industrial and funds management exposure. Target drops to $4.11 from $4.19.
The analysts acknowledge theirs are not consensus calls and therefore likely to trigger debate among investors and among peers. Among factors noted to worry about are ongoing structural headwinds, above average multiples and the potential for falling house prices to weigh on tenant sales.
SHOPPING CENTRES AUSTRALASIA PROPERTY GROUP ((SCP)) Downgrade to Sell from Neutral by Citi .B/H/S: 0/3/2
Citi analysts don't think recent share price rallies for some of the retail AREITs can be justified, hence the downgrade to Sell from Neutral. The analysts remain more bullish on AREITs with office, industrial and funds management exposure. Target rises by 4c to $2.18.
The analysts acknowledge theirs are not consensus calls and therefore likely to trigger debate among investors and among peers. Among factors noted to worry about are ongoing structural headwinds, above average multiples and the potential for falling house prices to weigh on tenant sales.
SPEEDCAST INTERNATIONAL LIMITED ((SDA)) Downgrade to Neutral from Buy by UBS .B/H/S: 1/3/0
UBS believe the stock is benefiting from potential earnings upgrades in FY19 from a rebound in energy verticals, as well as a multiple re-rating if investors obtain confidence that strong organic growth has returned.
Still, the broker concedes that, as the company has flagged, any recovery could be largely weighted to 2019. Rating is downgraded to Neutral from Buy. Target is raised to $6.00 from $5.80.
SOUTHERN CROSS MEDIA GROUP ((SXL)) Downgrade to Neutral from Buy by UBS .B/H/S: 2/2/2
UBS lifts FY19 operating earnings forecasts by 2% because of the lagged effect of the company's stronger-than-expected ratings momentum from the second half. No changes are made to FY18 forecasts.
The share price is up 17% since the February result and the broker downgrades to Neutral from Buy. From a cost perspective UBS envisages FY19 to be a relatively benign year across all businesses and, therefore, margin expansion is possible. The broker raises the target to $1.25 from $1.20.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/4/1
Traffic growth in the first half is consistent with Macquarie's expectations. The broker expects some interest could emerge around Sydney Airport's masterplan but that will be offset by the Productivity Commission review and associated aeronautical negotiations.
Macquarie downgrades to Neutral from Outperform as the valuation is considered stretched based on a bond rate assumption of 4.25%. Target is raised to $7.10 from $6.85.
TREASURY WINE ESTATES LIMITED ((TWE)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 3/2/2
The recent rally in the share price has caused Credit Suisse to downgrade to Underperform from Neutral. The broker still believes FY19 guidance of 25% growth in EBITS is achievable.
Yet the new US distribution model is unproven and the latest retail sales data shows volume down -17% in the supermarket channel that accounts for 40% of the company's US volume. The broker suggests the share price is factoring in success. A $15.65 target is maintained.
WOOLWORTHS LIMITED ((WOW)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 2/4/2
Ord Minnett expects a moderation in Woolworths' like-for-like sales growth and margins due to the removal of single-use plastic bags. This leads to a downgrade to Hold from Accumulate and a reduction in the target price to $30 from $32.50.
The broker notes the recent share price performance and elevated P/E multiples have made the stock more vulnerable to any earnings downgrades. Hence, Ord Minnett has reduced FY19 earnings estimates by -3.7% and FY20 by -2.7%.
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Negative Change Covered by > 2 Brokers
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CHARTS
For more info SHARE ANALYSIS: CQR - CHARTER HALL RETAIL REIT
For more info SHARE ANALYSIS: FMG - FORTESCUE LIMITED
For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED
For more info SHARE ANALYSIS: NCM - NEWCREST MINING LIMITED
For more info SHARE ANALYSIS: NHF - NIB HOLDINGS LIMITED
For more info SHARE ANALYSIS: PNI - PINNACLE INVESTMENT MANAGEMENT GROUP LIMITED
For more info SHARE ANALYSIS: SCG - SCENTRE GROUP
For more info SHARE ANALYSIS: SXL - SOUTHERN CROSS MEDIA GROUP LIMITED
For more info SHARE ANALYSIS: TWE - TREASURY WINE ESTATES LIMITED
For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED