Weekly Reports | Sep 24 2018
This story features COSTA GROUP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: CGC
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 September 17 to Friday September 21, 2018
Total Upgrades: 6
Total Downgrades: 6
Net Ratings Breakdown: Buy 41.77%; Hold 42.64%; Sell 15.59%
At face value, downgrades and upgrades in stockbroker recommendations for ASX-listed entities kept each other in perfect balance during the third week of September, but one has to take into consideration that retailer Premier Investments alone was responsible for three downgrades prior to and after it released FY18 financial numbers.
For the week ending Friday, 21st September 2018, FNArena registered a total of six upgrades and downgrades. Apart from Premier Investments, aged care operators are also represented among the downgrades, as is yield-infrastructure play Sydney Airport. The positive side doesn't reveal one dominating theme other than most upgrades going towards share market laggards, including Rio Tinto, Reliance Worldwide and Primary Healthcare.
Positive amendments to valuations/price targets were plenty, which is no doubt share market supportive, as is the observation that many of such supportive moves stem from companies reporting financial results post the August reporting season. TPG Telecom enjoyed the largest gain during the week (+15.7%), followed by Beach Energy, Premier Investments, WorleyParsons, Charter Hall and Woodside Petroleum.
There were equally some large reductions taking place, but such amendments have come out in noticeably smaller numbers. Little surprise, aged care provider Estia Health suffered the most (-12.2%), followed by Automotive Holdings, Telstra and another aged care provide, Japara Healthcare.
Positive earnings estimates adjustments were hefty with New Hope Corp commanding the week's lead, handsomely beating Perseus Mining, Synlait Milk and Premier Investments. Not so lucky were NextDC, TPG Telecom, Ardent Leisure, Telstra and oOh!media were earnings estimates took a large step backwards.
The share market overall continues to be dominated by international tensions and portfolio rotation into value laggards.
Upgrade
COSTA GROUP HOLDINGS LIMITED ((CGC)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/3/0
The share price has underperformed since the August results and UBS upgrades to Buy from Neutral. Supporting the upgrade is the stronger wholesale produce pricing and the growth projects.
Upside is expected to FY19 guidance for low double-digit net profit growth, albeit limited, and the broker suggests there is a risk of a large skew to the second half.
Still, the outlook is considered priced in as expectations have been re-based post the FY18 result. Target is steady at $8.20.
FONTERRA SHAREHOLDERS' FUND ((FSF)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 0/2/1
The disappointing FY18 results were well flagged with two downgrades in the second half. The FY19 guidance of 25-35c per share is disappointing but Credit Suisse views management's more conservative intentions as a positive.
The broker believes the company's ability to forecast earnings is challenged by the complexity of the business and limited control over input costs.
Credit Suisse upgrades to Neutral from Underperform and lowers the target price to NZ$5.09 from NZ$5.12.
PRIMARY HEALTH CARE LIMITED ((PRY)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 2/2/3
The Fair Work Commission has intervened in a dispute relating to the Dorevitch pathology business, ordering Primary Health Care to offer pay increases of up to 20% to around 1800 workers. The company has confirmed the impact on underlying net profit in FY19 would be -$4.5m and plans to take measures to mitigate the impact.
Clarification on the long-delayed ruling removes an overhang, Ord Minnett suggests. The broker reduces FY19 earnings estimates by -2%. Rating is upgraded to Accumulate from Hold and the target increases to $3.30 from $3.10. The broker expects attention can now turn to improving the business under the new management team, with the potential for a boost to Medicare funding ahead of the next federal election.
RIO TINTO LIMITED ((RIO)) Upgrade to Add from Hold by Morgans .B/H/S: 6/1/0
Rio Tinto plans to return the $3.2bn in net proceeds from the sale of its remaining coal assets through a new off-market share buyback which will be carried out over the remainder of 2018. While the buyback is a positive, Morgans struggles with the move to divest coal, as it has further concentrated the business.
The broker considers the recent weakness in the share price has uncovered attractive value, and healthy metal prices could mean additional capital management and growth is added. Morgans upgrades to Add from Hold. Target is raised to $81.32 from $80.67.
RELIANCE WORLDWIDE CORPORATION LIMITED ((RWC)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 3/2/0
The company has hosted an investor briefing. Deutsche Bank is pleased that John Guest is on track as it is the near-term catalyst for the business. The broker remains concerned that adequate US sales margin growth can be achieved, nonetheless, as the opportunities are largely in lower margin segments.
While forecasts remain unchanged, given the recent underperformance in the share price, the broker upgrades to Hold from Sell. Target is $4.80.
WOODSIDE PETROLEUM LIMITED ((WPL)) Upgrade to Outperform from Underperform by Credit Suisse .B/H/S: 3/4/0
Credit Suisse upgrades to Outperform from Underperform and believes Scarborough's time has come. The broker, with a new analyst assuming coverage, considers Scarborough makes up for the aspects of the business it does not like, presenting a more de-risked project than is widely credited.
The broker considers Woodside's unique industry position and appetite for greater LNG market exposure is the differentiator. Positive announcements regarding Browse are also expected and major downside risks, aside from the oil price, are believed unlikely to materialise in the near term. The broker raises the target to $40.50 from $27.20.
Downgrade
ESTIA HEALTH LIMITED ((EHE)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/3/0
The Australian government has announced a royal commission into the aged care industry. Macquarie suggests negative media coverage and scrutiny from a royal commission will increase the likelihood of falling occupancy.
Despite having a cautious view on the aged care sector, the company's balance sheet and consistent conservative growth made Estia Health the broker's preference among listed operators.
However, given the negative coverage Macquarie considers the stock unlikely to outperform and the rating is downgraded to Neutral. Target is reduced to $2.70 from $3.60.
JAPARA HEALTHCARE LIMITED ((JHC)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 0/2/1
The Australian government has announced a royal commission into the aged care industry. Given the increased scrutiny and attention operators will receive in FY19, Macquarie believes there is increased risk from the company's strategy of reducing staff costs.
Consistent with the broker's view of the industry, there is a risk of falling occupancy throughout FY19. The earnings impact from a change in occupancy is greater for Japara Healthcare than its listed peers and the broker downgrades to Underperform from Neutral. Target is reduced to $1.33 from $1.77.
PREMIER INVESTMENTS LIMITED ((PMV)) Downgrade to Sell from Neutral by Citi and Downgrade to Hold from Buy by Deutsche Bank and Downgrade to Neutral from Buy by UBS .B/H/S: 1/4/1
Citi observes Smiggle is shifting to a less capital intensive model including concessions, wholesale agreements and third-party online partners. Nevertheless, the broker remains cautious and suspects rising labour costs and digital investment will carry over into FY19.
The broker downgrades the stock to Sell from Neutral on valuation grounds. Target is raised to $17.00 from $16.40. While earnings growth remains strong, the broker reduces retail operating earnings forecast by -9% in FY19 and -7% in FY20 because of elevated growth in operating costs.
FY18 results highlight the growing contribution of Smiggle as well as good cost control, and Deutsche Bank is encouraged by the sales trend in the apparel brands. Smiggle and Peter Alexander, the highest margin and highest growth brands, now account for 43% of retail sales.
The broker believes management has done a good job of steadying the core brands and executing on its growth strategy, however, the stock is nearing the revised valuation and the rating is downgraded to Hold from Buy. Target is raised to $18.50 from $16.70.
UBS has analysed Australian shopping habits and brand positions across the fashion sector. The data is broadly supportive of Premier Investments in terms of brand awareness and online strength, particularly at Peter Alexander.
The survey suggests some weakness in fashion expenditure early in 2018 but recent data from the ABS indicates trends have improved since April. The broker expects a solid FY18 result on September 20 but downgrades the rating to Neutral from Buy on valuation grounds. Target is raised to $20.30 from $17.30.
SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/3/2
The Productivity Commission review in the next nine months resets the focus to the threat around regulatory intervention, Macquarie observes. Submissions are taking a similar approach to previous reviews, with the airports supporting the current regime and airlines arguing for a more credible threat of "final offer" arbitration.
However, Macquarie doubts that regulatory intervention would make an impact on end-users versus lifting airline profitability. The broker takes a conservative approach, suggesting the pace of dividend growth will likely need to slow to ensure a smooth path for re-pricing and a shift to tax being paid.
Rating is downgraded to Underperform from Neutral. Target is raised to $7.13 from $7.05.
| Total Recommendations |
Recommendation Changes |
|
Broker Recommendation Breakup |
|
Broker Rating |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recommendation |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Target Price |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Earning Forecast |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Positive Change Covered by > 2 Brokers
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Negative Change Covered by > 2 Brokers
|
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
Click to view our Glossary of Financial Terms
CHARTS
For more info SHARE ANALYSIS: CGC - COSTA GROUP HOLDINGS LIMITED
For more info SHARE ANALYSIS: EHE - ESTIA HEALTH LIMITED
For more info SHARE ANALYSIS: FSF - FONTERRA SHAREHOLDERS FUND
For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED
For more info SHARE ANALYSIS: RIO - RIO TINTO LIMITED
For more info SHARE ANALYSIS: RWC - RELIANCE WORLDWIDE CORP. LIMITED